Being an income-driven investor who is always attracted by a steadily increasing distribution, there are several criteria I prefer to establish before narrowing down my search for a sustainable higher-yielding play. In this article I wanted to examine one particular small-cap energy firm that is currently in an uptrend, has a yield of 8.98 %( $2.49), possesses a forward P/E ratio at-or-under 17, and a market cap of under $2.0 billion.
Performance and Trend Status
On Thursday, shares of Vanguard Natural Resources (NASDAQ:VNR), currently possessing a market cap of $1.96 billion, a forward P/E ratio of 18.54, and a forward yield of 8.98% ($2.49), settled at $27.72. Based on Monday's closing price, shares of VNR are trading 1.66% above their 20-day simple moving average, 2.51% above their 50-day simple moving average, and 3.04% above their 200-day simple moving average. These numbers indicate a short-term, mid-term and long-term uptrend for the stock, which generally translates into a buying mode for traders.
An Upcoming Dividend For Both Its Common And Preferred Unit Holders
On Thursday, September 12, Vanguard declared a cash distribution attributable to the month of August 2013 at $0.2075 per unit ($2.49 on an annual basis) payable on October 15 to unit holders of record on October 1, 2013. In addition, Vanguard has also declared a cash distribution for its 7.875% Series A Cumulative Redeemable Perpetual Preferred Units (VNRAP) of $0.1641 per unit payable on October 15, 2013 to unit holders of record on October 8, 2013. In my opinion, as long as the company continues to generate sustainable net income to both its common and preferred unit holders, I see no reason why Vanguard should not be at least considered in the higher-yielding portion of your portfolio.
According to the company's second quarter earnings report, "Adjusted Net Income available to common unit holders (a non-GAAP financial measure defined below) was $36.0 million for the first six months of 2013, or $0.53 per basic unit, as compared to $30.3 million, or $0.58 per basic unit, in the comparable period of 2012". This decrease is a bit concerning and certainly something income-driven investors need to keep in the back of their minds when deciding how big or small of a position they should take in the stock. Unless these particular numbers see a significant improvement, I'd maintain a small to medium sized position in the event Q3 and/or Q4 earnings miss the mark.
Attractive Dividend Behavior
Since August 30, 2012, the company has increased its monthly distribution three times over the last 13 payable months (including the company's most recent payout set for distribution on October 15). From an income perspective, the company's forward yield of 8.98% ($2.49) coupled with its 12-month dividend behavior certainly make this particular stock a very viable income option for long-term investors in search of a higher-yielding play in the energy sector.
Permian Basin Acquisitions
On April 1, 2013, Vanguard completed the acquisition of certain natural gas, oil and NGLs properties in the Permian Basin in southeast New Mexico and West Texas from Range Resources Corporation (NYSE:RRC) for an adjusted purchase price of $266.3 million. Based on internal reserve estimates as of June 30, 2013, the interests acquired have estimated total net proved reserves of 20.1 MMBOE. Of which 42% is natural gas, 26% is oil, 32% is natural gas liquids and 85% is proved developed. When it comes to the company's recent acquisition in the Permian Basin, I'd personally like to see the percentage of proved reserves increase by a minimum of 5% over the next 18-24 months.
When it comes to those who may be looking to establish a position in Vanguard Natural Resources, I'd continue to keep a watchful eye on not only the company's dividend behavior over the next 12-24 months, but also any growth directly related to company's acquisition of assets within the Permian Basin which closed earlier this year.
Disclosure: I am long VNR. 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.