Crestwood Equity Partners (NYSE:CEQP) has come a long way over the past several years. And after lots of hard work, the energy company has finally reached an inflection point this year, where it's beginning to generate gobs of free cash flow. Because of that, it now has the flexibility to start returning more cash to shareholders above its current 7.4%-yielding distribution. While it's starting with a moderate 4.2% raise, that boost is likely the first of many to come.

That future dividend growth, when combined with the increasing strength of the company's financial profile, makes Crestwood an ideal investment for yield-seeking investors.  

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Turnarounds take time

Crestwood, like a lot of master limited partnerships (MLPs), found itself in a tight spot when the oil market began turning down in late 2014. The company had a bit too much debt, and it was distributing more cash to investors than it could afford to pay while also investing in expansion projects. Because of that, the company had to make some hard decisions, which included reducing its dividend, selling assets, and bringing on financial partners. These actions, however, helped bolster the company's financial profile, giving it the flexibility to invest in more high-return expansion projects as market conditions started improving.

That allowed the company to embark on a three-year, $1 billion expansion program, which it's about to complete. Because of that, its cash flow has been growing at a brisk pace, which should continue throughout 2020. Meanwhile, with capital spending winding down, Crestwood is on track to generate a significant amount of excess cash after funding its remaining projects as well as its current distribution level. As a result, it's in position to begin returning more money to investors, starting with the 4.2% distribution increase for 2020.

A big-time payout backed by top-notch financials

With its cash flow expected to grow sharply this year, Crestwood expects to cover its recently increased payout by about 2.0 times. That's by far the best level in its peer group, where the average is around 1.5. Meanwhile, the growth in both its earnings and excess cash will drive a notable improvement in its leverage ratio. While its debt-to-EBITDA level was a bit elevated at 4.2 times at the end of the third quarter, it's on track to fall within Crestwood's 3.5 to 4.0 target range by year-end. That would give it the second-lowest ratio in its peer group.

Thanks to those top-tier financial metrics, Crestwood's recently raised payout is on an excellent foundation. Furthermore, its strong financial profile gives it the flexibility to do other things that create value for investors. Among its options are to invest in additional high-return growth opportunities as they arise, as well as buy back common or preferred units. Any of those options would boost the growth in its cash flow on a per-unit basis, which would enhance its ability to increase its distribution in the future.

Predictable distribution growth is an aim for Crestwood, which is why it chose to provide its investors with a relatively modest increase this year even though its cash flow is on track to grow by more than 20%. While its pace will slow down in the future, given the reduction in capital spending, Crestwood operates in three of the best shale basins. That should provide it with plenty of investment opportunities in the coming years.

A great option for yield-seekers

Crestwood Equity Partners has finally finished a multiyear transformation program, which has firmed up its financial foundation as well as accelerated its growth engine. Because of that, it's now in the position to provide its investors with more cash, enabling it to boost its forward yield up to an even more attractive 7.7%. With that payout on one of the firmest foundations in the MLP space and more growth ahead, it's an excellent option for investors who want a low-risk way to collect a steadily rising income stream.

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