A 15% Yield For Patient Income Investors


  • The current yield is 15.03%, with trailing 1.09X coverage.
  • Management has several growth projects due to kick into earnings in 2019.
  • The market has discounted its price by 31% over the past year, but it has begun to come back - it's up 14% in the past quarter.

Looking for bargain basement deals in the high-yield space?

Take a gander at these performance figures for Summit Midstream Partners LP (NYSE:SMLP), a company whose price/unit has been seriously pressured over the past year and year-to-date, greatly underperforming the benchmark Alerian MLP Index ETF (AMLP) and the S&P 500.

SMLP had been up in the low $20s as recently as February '18, but then drifted down into the mid to low teen region, after its Q4 '17 earnings report. Over the last trading quarter, it has started to come back - it's up 14.18%:

What Happened?

SMLP's Q4 '17 report showed flat revenues and EBITDA, with distributable cash flow - DCF - declining for the third straight quarter, while net income had a big -230% drop.

The Q1 '18 earnings report in early May had a bigger decline in DCF and Net Income, while revenues also fell -13.61%, and EBITDA was slightly down, year-over-year.

Sequentially, SMLP's Q1 '18 earnings figures didn't bring much joy either, with revenue, EBITDA, and DCF all down vs. Q4 '17. EBITDA and DCF also were down vs. Q3 and Q2 '17. Net income was a smaller loss in Q1 '18 than Q4 '17, but declined vs. Q3 and Q2 '17:

As income investors, we concentrate on EBITDA and DCF to gauge distribution and debt sustainability, since net income for infrastructure-intensive companies is usually loaded with non-cash depreciation and amortization.

In SMLP's case, there's another non-cash charge which throws a monkey wrench into the net income calculation - the present value of an estimated Deferred Purchase Price Obligation ("DPPO"), for a dropdown asset SMLP purchased from its sponsor in 2016. Q1 '18 included $21.7M of non-cash DPPO expense, vs. $20.9M in Q1 '17.

SMLP's DCF faces another challenge in 2018 - they issued a $300M 9.50% Series A preferred equity

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This article was written by

Double Dividend Stocks profile picture
Target 5-10% yields backed by solid earnings for better portfolio income.

Robert Hauver, MBA, was VP of Finance for an industry-leading corporation for 18 years, and publishes SA articles under the name DoubleDividendStocks. TipRanks rates DoubleDividendStocks in the Top 25 of all financial bloggers, and Seeking Alpha rates us in the Top 5 of several categories, including Dividend Ideas, Basic Materials, and Utilities. 

"Hidden Dividend Stocks Plus", a Seeking Alpha Marketplace service, which focuses on undercovered and undervalued income vehicles. HDS+ scours the world's markets to find solid income opportunities with dividend yields ranging from 5% to 10%-plus, backed by strong earnings.

Disclosure: I am/we are long SMLP. 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.

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