Being both a stay-at-home mom and income-driven investor, there are several criteria I like to establish before narrowing down my search for what I consider to be a sustainable higher-yielding play. In this article I wanted to examine two small-cap energy firms that are currently in an uptrend, yield at least 7.50%, possess a forward P/E ratio at-or-under 17, and have a market cap under $3.0 billion.
No. 1 Calumet Specialty Products Partners LP (NASDAQ:CLMT) - On Monday shares of CLMT, which currently possess a market cap of $2.14 billion, a P/E ratio of 10.58, a forward P/E ratio of 12.05, and a forward yield of 7.98% ($2.72), settled at $34.08. Based on Monday's closing price, shares of CLMT are trading 0.94% below their 20-day simple moving average, 2.17% below their 50-day simple moving average, and 1.82% above their 200-day simple moving average. These numbers indicate a very slight short- and mid-term downtrend and long-term uptrend for the stock, which generally translates into a near-term selling mode and a long-term buying mode for traders.
Increasing Its Distribution As Headwinds Begin To Swirl
On Monday, July 22, Calumet Specialty Products Partners announced a quarterly dividend increase of $0.005/share, bringing its upcoming dividend payout to $0.685/share. It should be noted that this boost represents a 0.5% increase from its prior dividend of $0.68/share, which was paid on May 1.
When it comes to the dividend behavior of CLMT, investors have seen a steady rise in payouts over the last 24 months up to and including the company's next distribution, which is set to take place on August 14. For those of you who are counting, it's a total of eight consecutive increases by an average increase of $0.02375/share each time.
Now that I've highlighted the company's distribution behavior, the big question is whether or not this particular behavior can last, especially in the wake of a narrowing Brent-WTI spread. When the price of Brent and WTI crude oil narrows to such a point where both prices are identical, the spread is considered to be 'dead' and it remains dead until Brent once again surpasses the price of WTI.
In a recent article, Myra Picache had noted that "prices for West Texas Intermediate crude oil on the New York Mercantile Exchange traded at a premium versus Brent crude prices. That was the first time WTI cost more than Brent crude since October 2010 and WTI saw the biggest price premium over Brent since August 2010."
Dead Spreads put significant pressure on the profits of many refiners and given the fact Calumet has demonstrated stronger-than-expected results (twice with earnings estimates and three times with revenue-based estimates) over the last three quarters, both earnings and revenue growth could come into question when the company reports its earnings on August 7.
No. 2 Vanguard Natural Resources LLC (NYSE:VNR) - On Monday shares of VNR, which currently possess a market cap of $1.80 billion, a forward P/E ratio of 16.89, and a forward yield of 8.86% ($2.46), settled at $27.78. Based on Monday's closing price, shares of VNR are trading 1.88% above their 20-day simple moving average, 0.06% above their 50-day simple moving average, and 2.15% above their 200-day simple moving average. These numbers indicate short-term, mid-term and long-term uptrend for the stock, which generally translates into a buying mode for traders.
As Rumors Of A Potential Acquisition Take Shape, Rising Interest Rates Could Play A Deciding Factor.
On Thursday June 13, Vanguard Natural Resources announced a public offering of 2.2M of its perpetual preferred units (a deal valued at $53 million), which came just two weeks after the company had announced a 7M-share secondary offering of its common units (a deal valued at $190.9 million). SA author Albert Alfonso thinks that "VNR is clearly planning to do something big with the extra funds," however rising interest rates may play a considerable factor.
When Upstream MLPs begin to consider acquiring another company or entity for that matter, they need access to the capital markets in order for these transactions to be completed in somewhat of a streamlined fashion. The problem with that is, the U.S. marketplace is facing the very real threat of rising interest rates and as a result of such rate increases the acquisition process for some companies could be significantly obstructed.
Equity-based transactions of this nature don't necessarily offer the greatest of solutions either, as such moves may not equate into the value these companies would have realized in a lower-rate environment. In my opinion, Vanguard would need to act pretty fast if its management team is planning on making any type of key acquisition, as I strongly believe the Federal Reserve will raise interest rates before the end of the year.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VNR, CLMT over the next 72 hours. 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.