A Big yield from a MLP
Matt DiLallo (Crestwood Equity Partners): Crestwood Equity Partners isn't a well-known name in the energy industry. At a $5 billion enterprise value, the master limited partnership (MLP) is tiny compared to many of the industry's largest plays, some of which produce more than $5 billion in cash each year.
However, what Crestwood Equity Partners lacks in overall size, it more than makes up for in the magnitude of its cash distribution, which currently yields 9.7%. While a payout that high might seem suspicious, that's not the case at all. The company generates more than double the amount of cash needed to cover that payout. That provides it with money to expand its operations with room to spare to strengthen its already solid balance sheet.
Because of its sound financial position, Crestwood has started to become a consolidator in the MLP sector. The company recently agreed to acquire fellow MLP Oasis Midstream Partners (NASDAQ:OMP) in a $1.8 billion deal. That combination will enhance its operations while maintaining a healthy financial profile. As a result, Crestwood plans to increase its already monster distribution by 5% when the deal closes.
The company's growing scale and solid financial profile should enable it to continue consolidating the midstream sector in the future. Those future deals should further enhance its operations and boost its cash flow, which could support more distribution growth. Combined with its attractive yield, that upside makes Crestwood stand out as a compelling buy this month.