While there isn't an official definition of a high-yield dividend stock, most investors would lump any payout above 3% in that category these days. However, as attractive as that might be, some companies offer payouts that are more than double that level. Three of these ultra-high-yielders are master limited partnerships (MLPs) EnLink Midstream (NYSE: ENLC), CNX Midstream Partners (NYSE: CNXM), and EQM Midstream Partners (NYSE: EQM). Here's why yield-seekers won't want to miss this trio.
A high yield with healthy growth
Continue Reading Below
EnLink Midstream currently yields an eye-opening 8.7%. Usually, when yields get that high, it's a cause for concern, but that's not the case with EnLink. For starters, thanks to the stability of the long-term, fee-based contracts that underpin the bulk of its midstream assets, EnLink estimates that it will haul in between $730 million to $800 million in cash flow this year. That's enough money to cover the company's payout by a comfortable 1.3 to 1.4 times. On top of that, it has a strong balance sheet, backed by a 4.0 leverage ratio, which is right around the sweet spot for an MLP.
That healthy financial profile gives EnLink the flexibility to invest in high-return projects to expand its midstream footprint. Overall, the company expects to spend between $1.2 billion and $1.5 billion through 2021 on growth projects, which should increase cash flow by a more than 10% annual rate over that time frame. That should support a 5% to 10% yearly growth rate in its already outsize payout. Meanwhile, with the distribution rising at a slower rate than earnings, the company's other financial metrics should get even better.
A high yield with an even higher growth rate
CNX Midstream currently checks in with an enticing 8.8% yield. Stable cash flow from fee-based contracts also supports that payout, which it covered by comfortable 1.39 times last year. Leverage, meanwhile, was much more conservative than most MLPs, at less than 3.0 last year.
That stronger financial profile gives CNX Midstream the funds to grow at an even faster rate. The company plans to invest $250 million to $280 million on expansion projects this year, which should increase cash flow by 15% at the midpoint of its forecast. That should fuel a similar growth rate in the distribution, enabling the company to maintain a conservative coverage ratio between 1.2 and 1.4. CNX Midstream currently believes it can continue that 15% annual growth rate through at least 2023.
An ultra-high yield with room to grow
EQM Midstream offers the highest yield in this group at a jaw-dropping 10.2%. While that payout isn't on as firm a foundation as the others, it's quickly heading in that direction. EQM Midstream currently expects to generate enough cash to cover its sky-high payout -- which it intends on increasing by another 6% this year -- by a rather tight 1.0 to 1.1 times. Coverage, however, should improve to a more comfortable level above 1.2 by next year, as it completes some of its expansion projects. Likewise, leverage should also strengthen to a more conservative 3.5 to 4.0 in 2020.
EQM Midstream anticipates that it can maintain those stronger metrics even as it continues increasing its payout at a 6% annual rate. Driving that view are the $3.5 billion of expansion projects it has under way, which should boost earnings 33% by 2021. On top of that, the company recently made a needle-moving acquisition that will further bolster cash flow and its growth prospects. The company's ultra-high yield looks increasingly sustainable.
Massive yields that should grow even larger
While the ultra-high-yielding distributions are the main draw with this trio, investors won't want to overlook their growth prospects. The ability to increase their already well above average payouts could enable these MLPs to deliver some high-octane total returns over the next several years. That's what makes them such intriguing options for yield-seeking investors.
10 stocks we like better than EQT Midstream PartnersWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and EQT Midstream Partners wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019