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This 8.6%-Yielding Dividend Stock Keeps Getting Stronger

By Matthew DiLallo – Jul 28, 2021 at 9:05AM

Key Points

  • The MLP delivered strong second-quarter results thanks to improving market conditions.
  • A recent asset sale helped achieve its leverage target.
  • Crestwood's increased financial flexibility will further enhance its payout in the coming quarters.

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Improving market conditions and strategic moves enhances its sustainability.

Crestwood Equity Partners (CEQP 0.34%) currently offers a big-time dividend yield. The master limited partnership (MLP) clocks in at 8.6%. While a payout that high is often a warning sign, that's not the case with this energy company.

That's evident in its second-quarter results, which show that its payout is on rock-solid ground. Here's a closer look at those numbers and what's ahead for this income-generating MLP.

Drilling down into Crestwood Equity Partners' second-quarter results


Q2 2021

Q2 2020

Year-Over-Year Change

Adjusted EBITDA

$145.7 million

$127.8 million


Distributable cash flow

$85.8 million

$74.4 million


Distribution coverage ratio




Data source: Crestwood Equity Partners.

Crestwood Equity Partners reported double-digit increases in adjusted EBITDA and distributable cash flow during the second quarter. Meanwhile, distribution coverage -- a key metric for MLP dividend sustainability -- improved to 2.2, powered by its growing cash flow and unit repurchase program.

Fueling Crestwood's strong quarter was its gathering and processing businesses:

Crestwood Equity Partners' earnings in the second quarter of 2021 and 2020.

Data source: Crestwood Equity Partners. Chart by the author.

Overall, earnings from the company's gathering and processing segment soared 48%. The main driver was the improvement in the oil market, which allowed energy companies to connect 79 new wells to Crestwood's system. That helped boost volumes, especially in the Bakken, where gathering and processing volumes soared 58% and 59%, respectively.

Earnings from the MLP's storage and gathering segments grew by nearly 6%. This business benefited from higher volumes on the Stagecoach system, higher rail volumes at its COLT hub, and increased interest in gas storage contracts at its Tres Palacios system following winter storms in Texas earlier in the year.

Finally, marketing, supply, and logistics earnings declined by almost half. That's primarily due to market conditions, as the company saw limited storage opportunities because of higher international export demand.

People counting money together.

Image source: Getty Images.

A look at what's ahead for Crestwood Equity Partners

Crestwood and its joint venture partner, utility Consolidated Edison (ED -0.47%), agreed to sell Stagecoach Gas Services to Kinder Morgan (KMI 0.51%) for $1.225 billion during the second quarter. They closed the first part of that transaction in early July, with Crestwood receiving half of the $1.195 billion in gross proceeds. The company used that money to repay debt. As a result, it expects its debt-to-EBITDA ratio to improve to 3.4 to 3.7. That achieves Crestwood's long-term goal to get leverage to between 3.5 and 3.75 times debt-to-EBITDA.

Because of the impact of that asset sale and improving conditions in the energy market resulting from higher oil prices, Crestwood has revised its full-year forecast. The MLP now expects to generate between $570 million and $600 million in adjusted EBITDA this year and $345 million to $375 million of distributable cash flow. That's enough cash to cover the company's high-yielding distribution by 2.2 to 2.4 times for the full year, with between $150 million and $180 million left over.

The MLP only expects to spend $35 million to $45 million on capital projects this year. As a result, it will generate free cash flow. Crestwood intends to begin allocating its excess free cash flow toward repurchasing additional equity, with its board approving a $175 million repurchase program. That will further increase its distribution coverage ratio, putting its payout on an even firmer foundation.

A rock-solid high yield

Crestwood Equity Partners is generating a gusher of cash these days. That's giving it the funds to cover its big-time distribution and capital projects with room to spare. With the recent sale of its interest in Stagecoach enabling it to achieve its leverage target, the company has even more financial flexibility. The MLP looks like an excellent option for investors seeking to generate some passive income.

Matthew DiLallo owns shares of Crestwood Equity Partners LP and Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.

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