Any investor seeking high yield stocks needs to take a closer look at BreitBurn Energy Partners L.P. (NASDAQ:BBEP). The company currently yields an eye-catching 9.5%. Better yet, dividend investors don't have to wait very long between distribution checks as BreitBurn Energy Partners pays its investors monthly. Let's take a closer look at what makes BreitBurn Energy Partners such a compelling high yield stock.
Sustainable dividend growth
A solid current dividend yield is a great start, but an even better dividend is one that grows over time. This is where BreitBurn Energy Partners really stands out because it offers the best of both worlds as its current yield is high and its payout is growing. A growing payout really is the key to finding a great dividend stock.
This point is hammered home in the following quote by Wealthifi: "The thing is, if you're just oogling fat current dividend yields, you are missing the more profitable boat. When it comes to dividend investing, the far smarter play is to zero in on companies that consistently increase their dividend payouts." As we see in the following chart, BreitBurn Energy Partners is a company worth zeroing in on, as it has done a great job growing its payout over the past few years.
This growth isn't expected to end anytime soon as BreitBurn Energy Partners is focused on sustaining its growth. Its latest move to keep its distribution growing is to acquire rival QR Energy LP (NYSE:QRE), which has a high yield of its own. Once that deal closes later this year, BreitBurn Energy Partners plans to increase its payout to investors by another 3.5%.
Two ways to grow
Looking ahead BreitBurn Energy Partners has two ways to ensure its high yield only goes higher in the future. First, it's investing hundreds of millions of dollars each year to organically grow its high margin oil production. As the following slide points out, BreitBurn Energy Partners will spend $325-$345 million this year on oil projects in Texas, California, and Oklahoma.
Of that money $125 million is being spent to offset the natural decline of the company's oil and gas production from other wells. That leaves $200-$220 million in capital that's being spent to organically grow the company's production and payout.
However, the big growth driver at BreitBurn Energy Partners comes from acquiring oil and gas assets. As the following slide notes, the company has a long history of disciplined acquisitions that have been the real fuel behind the company's growth over the years.
There will be no shortage of future acquisition opportunities for BreitBurn Energy Partners as the shale boom has changed the way many exploration and production companies think about their mature assets. Instead of using the cash flow from these assets to slowly grow production these companies are now selling mature assets to pay for supercharged growth. In fact, in recent years there has been a real acceleration in the sale of mature assets, which is a trend that isn't expected to slow down as hundreds of billions of dollars still need to be invested in America's shale plays. Given its soon to be much larger size, BreitBurn Energy Partners has the scale it needs to pursue nearly any asset that goes up for sale.
BreitBurn Energy Partners is one of the best high yield stocks for dividend investing. Few companies offer investors a current yield as compelling as BreitBurn Energy Partners. Even fewer can grow that payout at the same rate as BreitBurn, which has two strong avenues of future growth opportunities to pursue.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.