Buckeye Partners (BPL +0.00%) currently yields an eye-catching 9%. However, as alluring as that payout might seem, it's not worth considering right now because of the company's weaker financial profile. That's why investors should forget about Buckeye Partners' high-yielding dividend and instead examine the offerings of fellow energy infrastructure companies EnLink Midstream (ENLC +0.00%), Noble Midstream (NBLX +0.00%), and Tallgrass Energy (TGE +0.00%). Each pays a similarly high-yielding dividend that they back with stronger financials metrics and expect to increase at a healthy rate in 2019 and beyond.
A higher yield with more growth
EnLink Midstream currently offers investors a higher-yielding distribution than Buckeye at 9.7%. Not only that, but EnLink also supports its payout with stronger financial metrics. The company anticipates that it will cover its high-yielding dividend with cash flow by 1.3 to 1.4 times in 2019, which is above Buckeye's 1.2 target. EnLink also believes its leverage ratio will be between 3.9 to 4.2 times debt-to-adjusted-EBITDA this year, which beats Buckeye's 4.5 target.
Image source: Getty Images.
However, what pushes EnLink over the top is that the company plans to increase its already attractive distribution at a 5% to 10% annual rate. Supporting that view is the company's expectation that it can grow cash flow per unit at more than a 10% compound annual rate through at least 2021 thanks to the expansion projects it has under way. While Buckeye also has several expansions under construction, it intends to retain its growing stream of cash flow to improve its financial metrics.
A high yield with high-octane growth prospects
Noble Midstream, meanwhile, offers a slightly lower payout, at 6.8%. However, what the midstream company lacks in current yield, it more than makes up for with its financial strength and growth prospects. That's because Noble Midstream expects to cover its high-yielding payout by a comfortable 1.5 to 1.7 times in 2019. Meanwhile, the company anticipates ending the year with a leverage ratio between 4.0 and 4.25 times debt-to-EBTIDA. Both of those metrics are better than Buckeye's numbers.
Another factor that sets Noble Midstream apart from not only Buckeye but also most of its midstream peers is its visible growth prospects. The company recently closed three transactions that will significantly enhance its long-term growth outlook. As a result of these deals, Noble Midstream believes it can increase its high-yielding payout at a 20% annual rate through 2022, while its leverage ratio declines to 3.0 and it maintains a distribution coverage ratio of at least 1.3. That combination of growth and strengthening financial profile should enable Noble Midstream to generate more income and higher total returns than Buckeye Partners over the next several years.
An attractive yield with enticing upside
Tallgrass Energy currently pays slightly less than Buckeye, given its current 8.8% yield. However, like the others on this list, it more than makes up for that with a stronger financial profile. The pipeline company expects to generate enough cash to cover its high-yielding dividend by more than 1.25 times this year, even with the assumption that it will increase the payout by 6% to 8%. Moreover, the company has an investment-grade credit rating backed by a low 3.7 leverage ratio.
However, what makes Tallgrass Energy an even more compelling investment opportunity is its growth prospects. The company currently has several large-scale expansion projects in development, including a joint venture to expand oil pipeline capacity in the Rockies and projects to move crude to a proposed export facility in Louisiana. If Tallgrass is successful in moving forward with these projects, it could enable the company to grow its cash flow and dividend at a high rate for the next several years.
Check out the latest Tallgrass Energy earnings call transcript.
Better options for income-seekers
Buckeye Partners' 9%-yielding dividend pales in comparison with the payouts of this trio of energy infrastructure companies. That's because they back their equally attractive payouts with stronger financial metrics and they have better growth prospects. That's why income-seeking investors should forget about Buckeye Partners and consider one of those other options instead.
