This Undervalued High Dividend Stock Goes Ex-Dividend This Week

Apr.27.13 | About: Mid-Con Energy (MCEP)

Are there still any undervalued high dividend stocks out there? Since the S&P is up over 16% since the November 2012 lows, we tried a bottom feeding strategy this week, and found a high dividend paying stock in the most unloved sector, basic materials, which is down nearly 3% year-to-date.

Like many of the dividend stocks we've written about in recent articles, Mid-Con Energy Partners LP, (NASDAQ:MCEP), has a much higher yield than its industry average and has strong earnings growth. We've added MCEP to the basic materials section of our High Dividend Stocks By Sector Tables, due to its current 8.51% dividend yield.

Profile: "MCEP is a Delaware limited partnership formed in July 2011 to own, operate, acquire, exploit and develop producing oil and natural gas properties in North America, with a focus on the Mid-Continent region of the United States. Our management team has significant industry experience, especially with waterflood projects and, as a result, our operations focus primarily on enhancing the development of producing oil properties through waterflooding." (Source: MCEP website)

Dividends: MCEP just announced a May distribution of $.505, which is an approximate 6% increase over the first quarter 2012 cash distribution rate of $0.475 per unit and an approximate 2% sequential increase over the fourth quarter 2012 cash distribution rate of $0.495 per unit. Since its December 2011 IPO, MCEP aid out $1.00 in distributions in 2012, and is now on tap to pay out around $2.01 in 2013. (Note: LP's call their dividends "distributions" and shares "units".)

MCEP goes ex-dividend on May 3, 2013, with a payout date of May 14, 2013:

Options: Although MCEP doesn't have especially high options yields, this October trade, from our Covered Call Table, is far enough out of the money that your price gain would compensate for not receiving the next 2 quarterly distributions, if your shares were assigned before the ex-dividend date. The second table illustrates your income for each scenario - Static (Underlying Shares Not Assigned); Assigned before any ex-dividend dates; and Assigned after ex-dividend dates:

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Selling Cash Secured Puts For Safety: With MCEP up over 27% in 2013, this alternative strategy offers additional safety in case of a pullback. It has a bit higher of a payout than MCEP's next 2 quarterly distributions, and a breakeven that's 10.24% below MCEP's share price. (Note: Put sellers don't receive dividends.)

You can see more details on this and over 35 other trades in our Cash Secured Puts Table.

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Earnings: MCEP is estimated for 30%-plus growth in 2013, and looks very undervalued on a 2013 PEG basis:

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Financials: So far, MCEP's ratios are much better than its industry's averages. It does have a higher debt load, but has a strong interest coverage ratio.

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Performance/Ownership: There also may be some potential for increased institutional ownership, since this is currently under 30%, vs. an overall industry average of over 61%.

Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was long MCEP at the time of this writing.

Disclosure: I am long MCEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.