Dividend stocks are the cornerstone of well-rounded retirement portfolios -- and you certainly don't have to look hard to find dividend paying companies. According to Finviz, there are nearly 2,000 companies paying a dividend with a market value of $300 million or more.
But not all dividend stocks are created equal. Although a handful of dividend payers seem to get all the attention, some of the market's best kept secrets lie hidden and completely forgotten by Wall Street. Perhaps no sector houses more of these under-the-radar high-yield dividends than energy.
With this in mind, we asked three of our top analysts to suggest one high-yield dividend in the energy sector which investors should dig more deeply into that Wall Street is currently missing. Here's what they had to say.
One would think that with a history dating back to 1886 this former subsidiary of John Rockefeller's Standard Oil Company would be well-known to investors by now. However, that's simply not the case, as few investors really pay all that much attention to pipeline and storage company Buckeye Partners (NYSE:BPL). That's despite the fact that the MLP boasts a distribution yield nearing 6%, which certainly qualifies it as a high-yielder.
Summit Midstream primarily earns its income as a natural gas gathering, treating, and processing services provider throughout various shale formations in the U.S. These include the oil-rich Williston Basin, home of the Bakken shale, as well as the natural gas-rich Marcellus shale.
While rapidly falling commodity prices have wreaked havoc on oil and gas drillers and servicers, they've had far less of an impact on midstream providers like Summit that rely on long-term, fee-based service contracts to support their operations and expansion. Based on Summit's most recent investor presentation, its weighted-average remaining contract life was 9.7 years, with a remaining minimum value commitment (MVC) of 3.8 Tcf of natural gas through 2026. Over the next four years its average daily MVC is 1,248 MMcf, or 84% of the throughput logged in the fourth-quarter of 2014. In plainer terms, Summit has a majority of its processing capabilities based on its fourth-quarter results (84%) spoken for through 2018, with minimal exposure to falling energy prices.
Another major growth driver will be drop-down assets acquired at a rate of $400 million to $800 million annually from Summit Investments. These assets are estimated to increase Summit's EBITDA from $202.5 million in 2015 to more than $520 million by 2019, for a CAGR of 27%.
Current energy prices could warrant some level of caution and a slowdown in Summit's dividend growth, but its yield of nearly 7% looks poised to remain consistent, or perhaps even grow, over the long run.
While some people have heard of Cheniere Energy (NYSEMKT:LNG) and its plans to be the first company to export liquefied natural gas from the United States, far fewer of them are probably aware that the facility from which Cheniere plans to process and export that natural gas is owned by its subsidiary Cheniere Energy Partners (NYSEMKT:CQP). If you are looking for a high yield investment, this Master Limited Partnership subsidiary is a great place to look.
I'll admit that I had my doubts at first about the prospects of Cheniere and its subsidiaries actually pulling this off. This was a relatively under-capitalized company that had failed as an exploration and production company and was sitting on an LNG import terminal that would likely do nothing but gather dust thanks to America's shale gas boom. Lo and behold, the company was able to pull off some financial wizardry to get the facility funded, and locked up long term sales contracts for 88% of the production capacity at the liquefaction terminal owned by Cheniere Energy Partners.
What you are getting with an investment in Cheniere Energy Partners is predicatbility and stability. Most of the revenue from this facility is in the form of fixed fees, with little commodity exposure. There isn't a whole lot of growth projected once the current facility is up and running -- unless the parent company decides to drop down its second liquefaction facility into the partnership. However, with a distribution yield of 5.5% today and some people selling out of this company for who knows why, direct ownership in this unheralded underling could be a great portfolio pickup.
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