Please ensure Javascript is enabled for purposes of website accessibility

Why Units of DCP Midstream Rallied 40% in May

By Matthew DiLallo – Jun 3, 2020 at 1:54PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The MLP benefited from some optimism last month.

What happened

Units of MLP DCP Midstream (DCP -1.15%) surged 40.1% in May, according to data provided by S&P Global Market Intelligence. Fueling the rally were its first-quarter results and an improvement in the oil market.

So what

DCP Midstream reported surprisingly strong first-quarter results last month. While its earnings and cash flow dipped by about 2%, that was a solid showing considering all the volatility in the oil market. The company benefited from recently completed expansion projects and excellent NGL marketing results.

A drawing of a rocket ship blasting off from a person's hand.

Image source: Getty Images.

Unfortunately, DCP Midstream doesn't anticipate a repeat performance for the rest of the year. The market turbulence forced it to slash its distribution by 50%, cut growth capital spending by 75%, and reduce other costs. Those actions will help bolster its liquidity and strengthen its balance sheet, putting it in a stronger position to navigate through this downturn.

Meanwhile, on a more positive note, oil market conditions started improving in May when states reopened their economies as the COVID-19 outbreak started waning. That boosted oil prices and demand, which should benefit DCP Midstream's business in the second half of the year.

Now what

While market conditions are improving, investors still have some concerns about DCP Midstream's distribution. That's why it yields more than 13% even after its big-time rally. Because of the risk that the company might need to cut its payout again, it's not an ideal option for income-seeking investors.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

DCP Midstream Stock Quote
DCP Midstream
DCP
$37.86 (-1.15%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.