This past year has been a turbulent one for investors. Through mid-December, the S&P 500 was down more than 5% for the year and had slid double digits from its high. The oil market, meanwhile, was even harder-hit after crude prices tumbled more than 15%. That put pressure on most oil stocks, including midstream companies that have limited direct exposure to commodity prices. The Alerian Energy Infrastructure ETF, for example, has lost more than 15% of its value this year.
In light of that, midstream companies look like compelling investment options heading into 2019. Not only do they offer even higher dividend yields, but some are reaching notable turning points that could give them an extra boost in the year ahead. Three with potential 2019 catalysts are Crestwood Equity Partners (CEQP), Enterprise Products Partners (EPD -0.30%), and Plains All American Pipeline (PAA -0.75%).
Plenty of fuel for 2019
Crestwood Equity Partners has been one of the best-performing midstream companies in 2018, having generated a total return of more than 25% through mid-December. However, it's well off its high for the year as the slump in the market caused investors to take profits. As a result, units of the master limited partnership (MLP) trade at a relatively cheap price given the growth it has coming down the pipeline in 2019. Currently, the company has the third lowest valuation in its peer group at 8.7 times anticipated 2019 earnings, which is well below the average of 11.2.
What makes Crestwood a compelling opportunity for 2019? The company is just about to hit an inflection point. After spending the past few years selling assets to repair its balance sheet and finance expansion projects, Crestwood anticipates that its earnings per share will expand at a 15% compound annual growth rate through 2020. Because of that, the company could be in the position to start increasing its 7.6%-yielding distribution to investors in 2019. That high growth rate for such a high-yielding stock could enable Crestwood to continue producing market-smashing returns next year.
About to hit the gas
Enterprise Products Partners has been having a strong year in 2018. The company's cash flow has rocketed more than 30% thanks to improving market fundamentals and the addition of several new assets that the company finished building over the past year. However, despite that big uptick in cash flow, Enterprise Products Partners' total return for the year is less than 1%. Meanwhile, its yield has risen to nearly 7% because the company has continued to increase its payout each quarter.
Like Crestwood, Enterprise Products Partners expects to hit a turning point in 2019. In this case, the company anticipates that it will be in the position to generate more than $1.25 billion in excess cash after paying its distribution. That would give it a large portion of the funds needed for its planned expansion spending, and once it accomplishes that, Enterprise will be in the position to return even more money to investors. The company's options would include increasing its distribution by a higher quarterly rate or repurchasing some of its dirt cheap units. That increase in cash returns to shareholders could provide the fuel to generate double-digit total annual returns in the coming years.
Hitting the target
Plains All American Pipeline has also enjoyed a strong year in 2018. The oil pipeline company's earnings have surged this year due to improving market conditions and recently completed expansion projects. That rebound, combined with the company's 5.4%-yielding distribution, has enabled Plains All American to generate a double-digit total return this year.
There could be much more in store for 2019. For starters, Plains All American expects to achieve its targeted balance sheet early next year, enabling it to start increasing its distribution to investors once again -- a key inflection point. Furthermore, Plains All American trades at a pretty low valuation, especially given the growth it anticipates in 2019. Because of those factors, the oil pipeline MLP could also generate double-digit total returns in the coming year.
Income with catalyst-driven upside
This trio of midstream stocks offer big-time dividend yields that appear poised to expand in 2019. That's because all three companies expect to hit a turning point in the next year, which will free up more cash to return to investors. Add that high-octane growth to their already high yields and these companies could all produce market-beating returns in 2019.