Income Investors: The Second Wave Of 5% To 17% Cash Yields For February

Feb. 01, 2019 9:16 AM ETET, NS35 Comments33 Likes


  • We cover six more high-yield vehicles going ex-dividend in February, plus one in March.
  • The yields range from 5% to 17%.
  • We also detail two alternative high-yield trades.
  • Looking for a portfolio of ideas like this one? Members of Hidden Dividend Stocks Plus get exclusive access to our model portfolio. Start your free trial today »

Last week, we wrote about a group of 10 high-dividend stocks going with ex-dividend dates in early February. We're covering another group of Basic Materials stocks in this article, which have ex-dividend dates ranging from 2/5/19 to 3/8/19.

Williams Companies (WMB) is the gorilla in the group, with a $32B market cap, followed by Magellan Midstream Partners LP (MMP) at $14.3B and Enable Midstream Partners LP (ENBL) at $6.6B.

The next three companies, NuStar Energy LP (NS), Sunoco LP (SUN), and Crestwood Equity Partners LP (CEQP), range from $2.2B to $2.6B. Summit Midstream Partners LP (SMLP) has the smallest market cap of the group, at $971M:

Distribution Calendar:

Five members of this group go ex-dividend next week, from 2/5/19 to 2/7/19, while ENBL should go ex-dividend ~2/15/19, and WMB should go ex-dividend ~3/8/19.

The yields have quite a spread, from 5.10% for WMB, all the way up to a whopping 17.61% for SMLP.


There's also quite a spread of distribution coverage in the group. You can see a correlation between the low coverage factor of 1.07X for SMLP and the very high 17.61% yield that the market is demanding from this company.

Contrast that with WMB, at the other end of the yield spectrum, at 5.10%, with very high coverage of 1.84X, and a premium price to distributable cash flow - P/DCF, of 10.68. Likewise, MMP yields 6.38%, the second lowest yield in the group, with the second highest price/DCF of 10.68X.

The average price/DCF for this small group is 9.13, and the average coverage factor is 1.34X, a number which is skewed higher because of WMB's outsized 1.84X coverage factor.

ENBL, which is part of our legacy premium portfolio, is in the sweet spot, with strong distribution coverage of 1.35X, and a price/DCF of 9.04X. Its 8.19% yield may be lower than the group average, but is still very attractive. Meanwhile, it's also still selling below book value, with a factor of .94X:


Like many other stocks we cover in the high-yield universe, income investors have given good support to this group in 2019 - they're all beating the market so far in 2019 - (the S&P 500 is only up ~5.8%). That's good news for sure, but look at how beaten up they still are after the Q4 '18 pullback.

SMLP has had the best 2019 return so far, at ~30%, in one month, but it's still down -41.57% over the past year. Likewise, large-cap WMB has gained 21% in the first month of 2019, but it's still down -18% over the past year.

Only two of these stocks have outperformed the market over the past year and in 2019 - CEQP, which is up 15.7% in 2019, and gained 12.12% in the past year, and ENBL, which is up 14.78% in 2019, and nearly flat, -0.89% for the past year.

Analyst Targets:

So, with those recent gains, where does that leave these stocks, in relation to the average price targets estimated by analysts?

Once again, SMLP heads the list, at 26.34%, the biggest gap between its current price, $13.06, and its $16.50 average price target.

But there are plenty of other names to choose from, with WMB still nearly 20% below its $31.89 average price target, CEQP 18.5% below its target, MMP ~16% below its target, and ENBL 7.86% below its $16.75 price target.

SUN and NS are the closest to their targets, at 2.15% and under 1%, respectively.

Selling Options:

This brings up another question. If you like a company, its fundamentals, and its prospects, but it's close to its average price target, do you just have to wait around for the next market hissy fit pullback to participate in some profits, or can you still make a few shekels by sticking your toe in the water?

That's where options selling can help.

We added a June $27.50 covered call trade for NS to our Covered Calls Table, where you can see more details for this trade and over 40 others, all of which we update throughout the trading day.

NS has two $.60 distributions during the course of this five-month trade, while its June $27.50 call strike pays $.80.

These are the three main profitable scenarios for this trade:

Static - which would give you a profit of $2.00 from the combo of the option dollars and the two distributions, giving you a 7.92% yield.

Assigned before the February ex-dividend date - a profit of $3.05, from the $2.25 price gain and the $.80 option premium, giving you 12.08% yield.

Assigned after the ex-dividend dates - for a profit of $4.25, for 16.83% yield.

But what if you don't own or want to buy NS at its current $25.25 price level?

That's where selling cash secured puts can help.

This at the money $25.00 June put strike has a very attractive $2.10 bid, which gives you a 21.59% annualized yield and a breakeven of $22.90.

Our free Cash Secured Puts Table can give you more details for this trade and over 40 other put-selling trades, all of which we update throughout the trading day.


With debt leverage one of the other important metrics for midstream companies, we ranked this group from the least leverage to the highest.

Remember that comparatively low 6.3% yield for MMP? The market is paying up for MMP's fundamentals, a very high ROE of 56%, an ROA of 16.8%, and a relatively low debt leverage of 2.68X.

SMLP's much higher 17% yield is demanded by the market, in part, due to its financial metrics, although it has the third-lowest debt leverage of this small group.

However, it's not always a direct correlation between yield and financial metrics - it's just part of that murky picture we all try to clarify when performing our due diligence.

Take large-cap WMB, for example - it has the highest debt leverage, 6.09X, but the market is only demanding a 5.1% yield. Countering that high debt leverage is WMB's second best ROE, 19.10%, and an ROA of 4.5%.


As we've detailed above, there are several high-yield vehicles that offer good payouts over the next few weeks and beyond. This article's focus is to offer you some attractive names in this space, via comparing yields, distribution coverage, price targets, valuations, and financial metrics.

Disclaimer: This article was written for informational purposes only and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

All tables furnished by unless otherwise noted.

CLARIFICATION: We have two investing services. Our legacy service,, has focused on selling options on dividend stocks since 2009.

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This article was written by

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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. We offer 2 investing services: "Hidden Dividend Stocks Plus", a new 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., an investment newsletter/website that features the best dividend stocks and option selling strategies for income investors looking to enhance their yields. The website also features High Dividend Stocks By Sector Tables, Covered Calls and Cash Secured Puts Tables, a Dividend Stocks blog, and a a Stock Market News and Data pages. 845-225-4094

Disclosure: I am/we are long ENBL, NS. 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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