For 12 years, Crestwood Equity Partners (CEQP) has built a solid business in the midstream sector. In this clip from "The High Energy Show" on Motley Fool Live, recorded on March 15, Fool.com contributor Matt DiLallo looks at how the oil and gas infrastructure company continues to produce impressive dividends on a regular basis.
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Matt DiLallo: Sticking with that pick and shovel play idea. I really like the midstream sector. We've seen it with the run-up in oil prices E&P companies that shot up but midstream companies really haven't risen too much. They're beaten down. These are the companies that gather, process the pipelines in all that infrastructure that we need.
One of my favorites is a little company called Crestwood Equity Partners. They're gathering and processing. What they'll do is they'll connect wells to bigger pipelines that will bring them to processing plants where they can separate natural gas from natural gas liquids like propane and ethane and then they'll take oil and water away from the production. Just basic services. But it generates a lot of cash flow.
They operate in some of the best basins the Bakken which is in North Dakota. Powder River Basin in Wyoming, and then the Permian Basin in Texas and New Mexico. The three best plays in America that's where they are located. They pay a really great dividend 8.8% yield. That might like jump out at you or that's too high but they're going to cover it with cash flow by 2.2 times this year.
They expected to raise it by 5% percent. They just acquired Oasis Midstream which was Oasis Petroleum's (CHRD 0.54%) MLP and that's going to give them some more cash flow. Oasis Petroleum was just in the news they're merging with Whiting Petroleum (WLL) to create a super player in the Bakken. There's a strong player backing that.
This is a company that's going to generate a lot of cash flow this year. Half of that's going into the distribution a quarter of what's left is going toward expansion projects. Because companies are drilling more wells they need more of these connections. They're going to do that. They're building a pipeline for Continental Resources for example in the Powder River Basin to support their growth and some other stuff.
Then they've got a little bit of free cash flow that they're going to use a maybe buy back some of their cheap stock shore up their pretty strong balance sheet maybe fund some growth. They want to be a consolidator in the sector. There's a lot of these small MLPs and private equity-owned players that they can gobble up and build a sizable player. They are one of my favorites. I think they're very well run. I think they can benefit from this.
There is a little bit of pricing that they get as they process natural gas. As gas prices go up they get to keep a little bit of that basic contract structure. It's just one of several really good midstream companies that are out there. But if you like a dividend of 8.8% it's pretty good.
