Crestwood Equity Partners (NYSE:CEQP) has come a long way over the past few years. The midstream-focused energy company has done that by selling assets to improve its financial profile so that it could invest in high-return expansion initiatives. Because those investments are starting to pay big dividends for the high-yielding master limited partnership, the company's payout is on an increasingly sustainable footing, which is precisely what dividend investors want to see.
They'll get another glimpse at Crestwood's progress this Tuesday, when it reports its third-quarter numbers. Here are a couple of things that dividend investors should keep an eye on when reviewing that release.
See if its growth accelerated as anticipated
Crestwood's earnings growth engine started kicking into high gear during the second quarter, as its earnings and cash flow both surged by more than 17%. Fueling the company's high-octane growth was the buyout of its joint venture partner in the Powder River Basin and the recent completion of several expansion projects.
The company added even more fuel to its growth engine during the third quarter by completing the Bear Den II processing plant and some related infrastructure in North Dakota, so its earnings growth rate should have further accelerated during the third quarter. That would keep the company on track to achieve its full-year guidance that cash flow will grow to a range of $275 million and $305 million. This forecast implies 30% year-over-year growth at the midpoint and would be enough money to cover the company's 7.1%-yielding dividend by a comfortable 1.5 to 1.7 times.
If that acceleration didn't happen, investors should see what headwinds the company experienced during the quarter to cause it to fall short of its outlook. The key thing to keep an eye on is whether the company encountered a problem that could derail its current forecast that cash flow will grow at a 20% compound annual rate through next year. That's because falling short of this outlook could affect Crestwood's ability to start increasing its dividend again.
See if it lined up any more expansion projects
Crestwood is currently in the midst of a major expansion phase, expecting to invest between $425 million and $475 million on growth projects this year. The company's expansion-related spending, however, is on track to decline in 2020. At the moment, the MLP anticipates investing only about $100 million to $150 million on expansion projects next year.
On one hand, the decline in capital spending will enable Crestwood to generate a significant amount of free cash next year. It could use those funds to boost its dividend, repurchase units, or pay down debt. However, a lower spending rate would also slow down the company's growth rate significantly post-2020. Investors should therefore see if the company lined up any new projects to keep it growing at a fast pace beyond next year.
One area to watch is in the Powder River Basin. The company has been evaluating opportunities to add more third-party producers to its system in that region, as well as potentially expanding its capabilities to include oil services. Meanwhile, the company is also exploring opportunities to build another gas processing plant in the Delaware Basin, as well as adding crude oil and water-related services to its suite of offerings. Crestwood's ability to capture opportunities like those would enable it to continue growing earnings at a healthy clip. That could potentially give it the fuel to increase its dividend at a fast pace in the future.
Eyeing the quarter with the dividend in view
Crestwood Equity Partners has spent the past few years turning around its operations so that it can once again pay a steadily growing dividend. The acceleration of its growth rate during the third quarter would be one of the final pieces of that puzzle. That's why dividend investors should keep a close eye on the company's growth engine this week since a strong third-quarter showing increases the likelihood of a higher payout in 2020.