Thanks in part to higher oil prices, the average energy stock in the S&P 500 is up nearly 17% over the past year. However, those improving market conditions haven't taken the entire sector higher. Three laggards that stand out are fast-growing, high-yielding MLPs Antero Midstream Partners (AM 0.72%), Shell Midstream Partners (SHLX), and EQT Midstream Partners (EQM), which have all lost more than 10% of their value over the past year. Because of that, these MLPs look like compelling options for income-seeking investors to consider.
Top-tier growth
Antero Midstream has lost about 13% of its value in the past year. That sell-off is a bit of a head-scratcher since the company has grown its distributable cash flow by 30% over that timeframe, which has enabled the company to increase its distribution to investors at that same rate. Because of those two factors, Antero Midstream's yield has risen to an attractive 5.7%.
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Adding to Antero Midstream's attraction is its current growth forecast. The company announced earlier this year that it expects to increase its distribution by 28% to 30% per year through 2020. Further, the company believes that it could boost the payout by another 20% in both 2021 and 2022 while maintaining at least a 1.2 times distribution coverage ratio. That's the fastest growth rate among MLPs.
Fueling that forecast is Antero Midstream's $2.7 billion inventory of high-return organic growth projects that it expects to complete over the next five years. The company anticipates that it can fully fund that growth with excess cash after paying its dividend and incremental debt even as it maintains solid credit metrics. That high-octane growth for a lower price makes Antero Midstream seem like a gold mine for income-seeking investors.
The fuel to continue growing
Shell Midstream Partners has declined about 20% over the past year. That slump comes even though cash flow rocketed nearly 72% in just the last quarter. While some of that increase is due to a return to normal services for its Zydeco pipeline in Texas after some maintenance work in the first quarter, the company also recently closed the acquisition of an interest in the Amberjack Pipeline Company. At $1.22 billion, it's the company's largest acquisition to date.
That transaction supports Shell Midstream's view that it can grow its distribution to investors by 20% this year. Meanwhile, the company has a solid financial profile and a large pipeline of acquisition opportunities that should support continued distribution growth in the coming years. Because of that, the company's 6.6%-yielding distribution looks quite enticing these days.
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A big shake-up masks a bright future
Units of EQT Midstream are now down more than 25% in the last year. That's due in large part to the fact that the company's parent is undergoing a major corporate realignment. As part of that restructuring, EQT Midstream bought its parent's remaining midstream assets in a $1.69 billion deal that also included buying out a minority partner in one of the acquired assets. In addition to that, EQT Midstream merged with another MLP controlled by its parent in a $2.4 billion deal. These transactions have created one larger-scale MLP with an extensive inventory of expansion projects under development.
The combination of recently acquired growth and expansion projects in the pipeline positions EQT Midstream to increase its distribution to investors by 15% per year for the next several years, including 2018. Further, the company believes it can achieve this growth while maintaining a strong balance sheet and covering its distribution by a comfortable 1.1 times to 1.2 times. This forecast suggests that EQT Midstream's now 7.6%-yielding payout is not only on solid ground but poised to expand at a fast pace in the coming years.
Higher yields for a lower price
After selling off in the last year, these MLPs now trade at much more attractive prices. Further, since all have increased their high-yielding payouts at a high rate in the past year, investors can lock in even better yields that all three companies expect to continue growing at a fast pace in the coming years. That combination of income, growth, and value makes these MLPs worth a closer look.
