4 Under-the-Radar Stocks Yielding More Than 4% That You Won't Want to Miss

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With the market continuing to march higher this year, it is getting even harder to find stocks that offer a compelling dividend yield. At the moment, the average yield of stocks in the S&P 500 is down to a meager 1.8%, which is less than half the historical average, so income-seeking investors need to dig a bit deeper in search of a compelling income stream.

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It's worth digging around in the master limited partnership sector, where several companies offer payouts that are more than double the market's current yield. Four high-yielders stand out because they're likely unfamiliar names (not to mention the fact that each has strong financials and excellent growth prospects):

Company

Current Yield

Antero Midstream Partners (NYSE: AM)

4.74%

EQT Midstream Partners (NYSE: EQM)

5.57%

Phillips 66 Partners (NYSE: PSXP)

5.26%

Valero Energy Partners (NYSE: VLP)

4.35%

A hidden gem

Fast-growing natural gas producer Antero Resources (NYSE: AR) created Antero Midstream Partners in 2013 to facilitate its expansion efforts in the Marcellus shale and Utica shale plays, by building natural gas gathering and water lines to support its parent company's drilling plans. Currently, Antero Resources expects to grow production by a 20% compound annual growth rate through 2020, which gives Antero Midstream the ability to increase its already generous distribution to investors by 28% to 30% annually over that time frame. Furthermore, it can achieve that rapid growth rate while maintaining a conservative distribution coverage ratio of 1.25 and a leverage ratio (debt-to-EBITDA) a little over 2, which is almost half the rate of even the most conservative MLPs. Those factors significantly reduce the company's risk profile, making it a real gem for income-seekers.

Income growth with an upcoming catalyst

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EQT Midstream is almost a carbon copy of Antero Midstream. The country's top gas producer, EQT Corp. (NYSE: EQT), created it to acquire and develop midstream assets in the Marcellus and Utica shales. Since then EQT has steadily grown its MLP, while maintaining a healthy financial profile. EQT Midstream covered its distribution by a ratio of 1.4 over the past year, and has an excellent leverage ratio of 1.5 times debt-to-EBITDA -- well below its target of 3.5, so its lucrative current payout is on solid ground. Complementing its generous income stream, EQT Midstream offers investors plenty of upside potential. Currently, the company plans to boost that payout by a 15% to 20% annual rate starting next year.

That said, there's a catalyst on the horizon worth noting. Earlier this month EQT Corp. closed its hotly contested acquisition of Rice Energy, which made it the top gas producer in the country. One of the intriguing aspects of that deal for EQT Midstream is that Rice owned midstream assets that will generate $130 million in EBITDA in 2018, as well as a sizable stake in Rice Midstream Partners (NYSE: RMP), which currently produces more than $250 million in annual EBITDA. EQT Corp. already said it would drop down the acquired midstream assets to EQT Midstream, and it could also merge Rice Midstream Partners with its MLP. EQT Midstream currently generates about $700 million in EBITDA, so those moves would provide it with a significant earnings lift, which might lead it to increase its payout by an even higher rate than its current forecast.

Still plenty left in the tank

Phillips 66 Partners got its start about five years ago when refining giant Phillips 66 (NYSE: PSX) created the MLP to drive its midstream growth strategy. Phillips 66 expected that plan to fuel 30% compound annual distribution growth for investors in its MLP through 2018. So far both companies have kept that promise, since Phillips 66 Partners has increased its payout by a 32% compound annual rate. And that payout is on rock-solid ground, since the MLP covered it with cash flow by a ratio of more than 1.3 over the past year, and it has a low leverage ratio of 3.5.

While Phillips 66 Partners' current growth plan ends next year, the company expects to deliver distribution growth in the top quarter of its peer group after 2018. Fueling that belief: The company has several expansion projects in development that won't enter service until later next year.

A steady stream of dropdowns

Valero Energy Partners is very similar to Phillips 66 Partners since it was also formed about five years ago by a refining giant, Valero Energy (NYSE: VLO), to support its logistics business. Currently, the Valero MLP has a strong financial profile; it covered its distribution by a ratio of 1.6 last quarter and had a low debt-to-EBITDA ratio of 2.9. Meanwhile, the company expects its already lucrative payout to continue heading higher, aiming for at least 20% growth in 2018. It has ample fuel to keep increasing it in the future since Valero owns an MLP-eligible inventory of assets that currently generate about $1 billion in annual EBITDA, giving it a large pool to drop down to its MLP in the coming years.

Low-risk income with plenty of upside

All four of these MLPs are fairly new to the industry. Between that and the oil price crash making the past few years brutal in the energy sector, you probably haven't even heard of this quartet. That means you're missing out on companies that not only pay generous distributions backed by conservative financial profiles, but also have visible growth prospects to increase their payouts by double-digit rates for the foreseeable future. That tantalizing combo certainly makes them worth a closer look.

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Matthew DiLallo owns shares of Phillips 66. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.