Income investors, including retirees, seek regular dividend income while investing in stocks. To enhance your regular income, investing part of your total portfolio in high-dividend stocks could be a good strategy. However, higher yields usually entail higher risk, so thorough research is more important than ever.
Let’s take a look at five stocks that are trading with high dividend yields and the risks involved with each. The selected stocks have market caps of between $1 billion and $7 billion.
USA Compression Partners
USA Compression Partners (USAC) primarily provides natural gas compression services. Natural gas compression involves compressing natural gas into a smaller volume and a higher pressure to make it easier to transport. This MLP provides compression services in all major shale plays throughout the US. Though USA Compression was listed in January 2013, it’s been operating since 1998. Energy Transfer (ET) owns around 48% of USAC.
USA Compression Partners stock offers a yield of about 11.4%. The company hasn’t raised its dividends for the last four years. (Though MLP dividends are called “distributions,” we’ve used the term “dividend” throughout this story for the sake of simplicity.) The stock is up around 45% so far in 2019.
Rising natural gas demand and production is a key driver of long-term demand growth for compression services. Rising shale gas production against production from conventional basins is another key driver of the growth in compression services. Shale gas is generally produced at a lower wellhead pressure than conventional gas wells. Therefore, it requires much greater compression before it can be transported. This necessity results in increased demand for compression services.
USA Compression Partners has managed to sail through the energy sector turmoil over the last few years. Additionally, the fundamental drivers of the company’s future growth look strong. Given its stock’s 45% rise this year, it may look like it’s already too late to enter. However, its solid yield continues to be extremely attractive. USA Compression Partners’ growth prospects and strong performance should drive its stock price higher.
Of the eight Reuters-surveyed analysts covering USA Compression Partners, six call it a “buy,” and the remaining two call it a “hold.”
AmeriGas Partners (APU) is trading at a yield of approximately 11.4%. However, the MLP is about to merge with UGI Corporation (UGI). AmeriGas Partners has recommended that its unitholders vote in favor of the merger. A special meeting of AmeriGas unitholders is scheduled for August 21. APU unitholders will receive 0.5 shares of UGI stock and $7.63 in cash for each AmeriGas unit they hold.
UGI currently pays a quarterly dividend of $0.3 per share. It’s trading at a yield of approximately 2.4%. In comparison, AmeriGas Partners announced a distribution of $0.95 per unit for the second quarter. Investors who are considering buying AmeriGas for yield won’t get to enjoy the high yield after its merger with UGI is complete.
Is Antero Midstream a dividend stock?
Another midstream stock trading at a high yield right now is Antero Midstream (AM). The stock is trading at a yield of around 11%. The company raised its second-quarter dividend by 1.7%. AM might interest investors who are looking for a high yield in the midstream space but don’t want to invest in MLPs. Antero Resources (AR) owns a 31% stake in Antero Midstream.
Antero Midstream has robust operations in the Appalachian region. The company gathers, processes, and transports natural gas. It also has water delivery and wastewater treatment assets. AM stock has fallen about 2% in 2019 in contrast to most other midstream stocks, which have posted handsome gains. It’s trading close to its 52-week low. Antero Midstream started trading as a C corporation in March 2019, when Antero Midstream Partners and Antero Midstream GP merged into a single entity. The stock has been on a downward trend since then.
EQM Midstream Partners
EQM Midstream Partners (EQM), an MLP of Equitrans Midstream (ETRN), is trading at a yield of 11.2%. Equitrans Midstream acquired all units of EQGP Holdings in January. EQM Midstream Partners’ yield has significantly risen over the last year and a half. Its yield rose due to a steep fall in its stock price.
Delays and increased costs for EQM Midstream’s Mountain Valley Pipeline project have significantly affected its stock price. As per a June filing with the Securities and Exchange Commission, EQM Midstream expects a mid-2020 full in-service date for the Mountain Valley Pipeline project. The company expects an overall project cost of $4.8 billion–$5.0 billion. When the company started the project, it expected it to be complete by the end of 2018. It was then delayed until the end of 2019 and then to mid-2020. The cost of the project has also escalated from an estimated $3.5 billion in 2018 to nearly $5 billion.
However, the stock seems to have fallen much more than it should due to the Mountain Valley project delay. As the project nears completion and becomes operational, the stock should see an upside. In the meantime, the MLP’s yield return of 11.2% should be attractive enough to keep investors happy.
EnLink Midstream’s dividends
EnLink Midstream (ENLC) is trading at a yield of 11.2%. The company completed a simplification transaction in which it acquired EnLink Midstream Partners LP in January. ENLC fell significantly after its first-quarter results in April, when it revised its net income guidance for 2019 downward. However, a noncash charge related to goodwill resulted in the downward revision.
The company continues to focus on the Permian Basin and other growth projects. These should fuel its long-term earnings growth. EnLink Midstream raised its second-quarter dividend by 1.4%. It’s set to release its earnings results on August 6. The stock could see an upside if the company reports strong results for the quarter.
As for analysts, seven of the 15 analysts covering EnLink Midstream rate it as a “buy,” seven rate it as a “hold,” and one rates it as a “sell.” Analysts’ median price target for the stock is $13.