Units of Crestwood Equity Partners (CEQP) have fallen nearly 20% from their recent peak. That sell-off has helped push the master limited partnership's (MLP) distribution yield up over 10% after factoring in its recent 5% increase. 

Usually, a double-digit yield is a sign of distress. However, that couldn't be further from the truth for Crestwood. Instead, it's an increasingly attractive option for investors seeking a big-time passive income stream.

Drilling down into the numbers

Crestwood Equity Partners recently reported its second-quarter results, providing investors with another glimpse into its financial profile. The MLP generated $180 million of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That's 23% above the prior year period, fueled by its recent acquisition of Oasis Midstream, strong producer activity, and robust commodity prices, which more than offset a $13 million hit from winter weather in a key basin. 

Meanwhile, Crestwood produced $108.1 million of distributable cash flow. That was up 26% year over year. It was enough money to cover the MLP's high-yielding distribution by 1.7 times. That enabled the company to retain cash to fund its entire $42.6 million capital spending outlay with about $1.3 million to spare, allowing it to maintain a solid balance sheet. Crestwood ended the second quarter with a net debt to adjusted EBITDA ratio of 3.7, within striking distance of its 3.5 long-term target. 

Already solid numbers are about to get even better

Crestwood expects further improvement in its results in the coming quarters, fueled by two catalysts. First, the MLP recently completed a string of strategic moves to enhance its position in the fast-growing Delaware Basin while maintaining its strong financial profile. These moves included: 

  • Acquiring Sendero Midstream Partners for $600 million in cash.
  • Purchasing its joint venture partner's 50% interest in Crestwood Permian Basin Holdings for 11.3 million common units.
  • Selling its legacy Barnett assets to EnLink Midstream for $275 million, which it used to reduce borrowings under its $1.5 billion credit facility.

The other growth driver is the continued strength in oil and gas prices this year. They're incentivizing producers to ramp up their development plans, boosting Crestwood's volumes as those new wells come online.

As a result, Crestwood expects to generate $800 million to $840 million of Adjusted EBITDA this year, an improvement from its initial guidance range of $780 million to $840 million. Meanwhile, the MLP narrowed its distributable cash flow forecast to a range of $505 million to $545 million. That's enough money to cover its high-yielding distribution 1.9 to 2.1 times over. That will enable it to fund its entire capital program -- which it's increasing from a range of $160 million-$180 million to $220 million-$240 million because of those deals and improving market conditions -- with $5 million to $45 million to spare.   

Crestwood sees its free cash flow after distributions and capital expenses surging in 2023. It expects to shift its strategic focus away from M&A to integrating its recently acquired assets to maximize free cash flow growth. That should enable the company to achieve its leverage target next year, putting its big-time payout on an even firmer foundation. It could allow Crestwood to increase its distribution again in 2023.

An incredibly rock-solid double-digit yield

Crestwood Equity Partners will produce enough cash to cover its 10%-yielding payout and entire expansion capital program with room to spare even though it has increased both this year. Meanwhile, it expects to produce substantial free cash flow in 2023, positioning it to achieve its conservative leverage target. These factors suggest Crestwood's big-time payout is on an extremely firm foundation. That makes it an excellent option for investors seeking a lucrative passive income stream.