Rattler Midstream (RTLR) has been a public company for only a few months. However, the midstream company has made quite a first impression. Not only did it deliver a strong first earnings report, but it also secured two needle-moving growth opportunities. Because of that, the company appears poised to produce strong growth in the coming years. Add that to the attractive dividend it intends on paying, and retirement-focused investors won't want to overlook this opportunity.
Off to an excellent start
Rattler Midstream completed its IPO in late May and has been quite busy since then. It released its first earnings report as a public company in early August, where it gave investors a glimpse of its growth potential. All four of the company's midstream businesses (produced water, fresh water, crude oil gathering, and natural gas gathering) delivered strong volume growth, with all but the crude oil segment reporting a triple-digit year-over-year increase. That helped drive adjusted EBITDA up 161% from last year's second quarter and 11% above the first quarter's level.
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Meanwhile, the company added two more fuel sources to its growth engine since its IPO. In late June, it agreed to become a partner on the Wink to Webster pipeline. The large-scale pipeline will move oil from the Permian Basin to the Houston area when it comes online in the first half of 2021. Long-term contracts back the project, meaning it will supply Rattler with steady cash flow.
In addition, the company and a joint venture partner agreed to acquire Reliance Gathering for $355 million in early October. That deal enhances Rattler's oil gathering business while improving its long-term growth prospects as oil companies drill more wells in the region Reliance serves.
Why this should excite retirees
In securing those two expansion opportunities, Rattler has enhanced what was already quite attractive growth prospects. One of those drivers is its close relationship with oil driller Diamondback Energy (FANG -0.65%). As Diamondback increases its oil and gas production, those volumes will flow through Rattler's systems, enabling it to collect more fees. That will allow Rattler to continue growing its earnings at a healthy pace. On top of that, the company is participating in two other long-haul oil pipeline projects, EPIC and Gray Oak. Both will provide a jolt to cash flow when they start up in the coming months. Add all that to the company's new growth opportunities and Rattler's earnings should expand at a high-octane growth rate for the next few years. That has the potential to fuel big gains in the company's stock price, which would help retirees grow their nest egg.
In addition to the company's compelling growth prospects, Rattler also offers retirees an intriguing income opportunity. While the company doesn't currently pay a dividend, it intends on paying out an annualized $1.00 per share to its investors. With Rattler's share price recently around $16.50 apiece, that payout rate implies a yield of around 6%.
The dividend will be on rock-solid ground, given Rattler's strong financial profile. For starters, it signed long-term contracts with Diamondback Energy and other producers for capacity on its midstream assets, providing stable cash flow for years to come. Further, it doesn't currently have any debt on its balance sheet, which gives it ample financial flexibility to fund its expansion opportunities. In the company's view, it can keep leverage below two times even as it finances its growing slate of expansion opportunities. That's half the rate of most midstream companies. Finally, Rattler aims to produce enough cash to cover its dividend while also self-financing its expansion opportunities. Those factors increase the long-term sustainability of the company's high-yield payout.
Well-positioned to deliver high-octane total returns
With two more growth opportunities lined up, Rattler Midstream should be able to continue expanding its earnings at a high rate for the next few years. Add those visible growth prospects to the company's anticipated dividend, and it could potentially produce double-digit total annual returns in the coming years. That low-risk income with upside makes it an intriguing stock that retirement-focused investors won't want to miss.
