It is tough to find a good yield these days, but if you look a little off the beaten path, it is possible to earn outsized returns. Some lesser-known companies can provide much higher than average yields and still offer stability. Over time, a higher yield can really add up. For example, the average stock in the S&P 500 Index (SPY) yields just over 2% which over 5 years might return about 10%. By contrast, a stock that yields 8.3% would provide around 42% in returns in the same time period. Here is an energy stock that does just that:
Boardwalk Pipeline Partners (BWP) provides transportation, storage, gathering and processing of natural gas and liquids to the energy sector. It operates a pipeline network that runs about 14,540 miles long. It has the capacity to store around 197 billion cubic feet of natural gas and about 20 million barrels of liquids. According to the company website, it carried about 11% of the nation's average daily consumption of natural gas in 2011. It has six subsidiaries which specialize in a range of activities and services. Here are three reasons to consider buying the stock:
1) It's always good to see a top stock picker endorse an investment,
especially when it provides above-average yields. A recent "Lighting
Round" recap on Jim Cramer's "Mad Money" confirmed that "Cramer
likes this stock right now."
2) The pipeline business provides relatively stable cash flows and that allows Boardwalk to make quarterly distributions. It has a significant portion of revenues backed by firm, long-term contracts and this reduces risks for the company. It also has a strong management team with experience in the energy sector. Boardwalk has been reporting solid financial results. For the third quarter it announced revenues of $270.6 million and net income of $59 million and earnings before interest, taxes, depreciation and amortization of $162.8 million.
3) Since Boardwalk went public in 2005, it has paid a cash distribution every quarter. It also has been raising the payout regularly. For example, in 2007, it paid $1.78 and raised the distribution every year since. In 2011, it paid out about $2.10. These levels of distributions look sustainable and the company has investment-grade credit ratings from S&P, Moody's, and Fitch. This kind of stability and history is what many income investors seek, especially when selecting high-yielders.
Here are some key points for BWP:
Current share price: $25.73
The 52 week range is $23.55 to $29.43
Earnings estimates for 2012: $1.37 per share
Earnings estimates for 2013: $1.47 per share
Annual dividend: $2.13 per share which yields 8.3%
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.