USA Compression Partners LP: A Safe, Dependable 14.1% Dividend
May 17, 2021
USAC Stock Maintains $0.525 Quarterly Payout
The energy sector is cyclical in nature, which means there can be stretches of volatility. That’s because its performance is based on where we are in the economic cycle, and even the weather.
After all, when the economy goes south, fewer businesses need oil, or if there’s an unseasonably warm winter, there’s not as much demand for natural gas. That can make investing in energy stocks unpredictable.
If you’re looking for an energy stock that has made passive income investing less volatile, look no further than USA Compression Partners LP (NYSE:USAC).
USA Compression is an oil and gas equipment services company with a stock that investors have come to rely on for a safe, dependable dividend.
USA Compression Partners, LP is an independent provider of compression services in, you guessed, it, the U.S. The company, together with its subsidiaries, provides services under fixed-term contracts to oil companies and independent producers, processors, gatherers, and transporters of natural gas and crude oil. (Source: “Overview,” USA Compression Partners LP, last accessed May 14, 2021.)
The company provides compression services in various shale plays throughout the U.S., including Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, and Mississippi Lime.
Some high-yield energy stocks can see their payouts fluctuate significantly from quarter to quarter. This was especially true during 2020, and even in 2021. That’s not the case with USA Compression stock, though. It’s nothing if not reliable. USA Compression Partners LP has paid investors $0.525 per share every quarter since 2015.
Some investors love to see a company raise its dividends on a consistent basis. And really, who wouldn’t? It means more money in your pocket. But when it comes to the cyclical energy sector, there’s something to be said for dependability, especially when unreliability leads to big swings in a company’s share price.
It’s one thing to invest in a company that pays high dividends when times are good and its share price is bullish. It’s another to invest in a company that slashes its dividends when its share price is taking a beating.
USA Compression Partners LP does neither. USAC stock pays out a frothy quarterly dividend no matter what the economy is doing.
USA Compression stock fell off a cliff in March 2020, cratering by more than 75%. Since then, the stock has soared by approximately 445%. USAC stock is also up 122% year-over-year and 21% year-to-date.
Chart courtesy of StockCharts.com
Throughout its roller-coaster ride, USA Compression stock helped investors weather the storm. During the worst economic crisis since the Great Depression, investors in this dividend stock were, I imagine, more than happy to pocket $0.525 per share every single quarter.
On April 14, the partnership announced a first-quarter cash distribution of $0.525 per common unit, or $2.10 on an annual basis. At USAC stock’s current price, that translates into an annual dividend yield of 14.1%.
Financial Results & Outlook
Because of USA Compression’s fixed-term contracts and its ability to control expenses, the company was able to announce solid first-quarter results and confirm its 2021 outlook. (Source: “USA Compression Partners, LP Reports First Quarter 2021 Results; Confirms 2021 Outlook,” USA Compression Partners LP, May 4, 2021.)
USA Compression’s total revenue was $157.5 million, compared to $179.0 million in the first quarter of 2020. Its net income was $400,000, compared to a loss of $602.5 million in the same prior-year period.
The company’s net cash provided by operating activities was $39.6 million in the first quarter of 2021, compared to $50.1 million in the first quarter of 2020.
Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first quarter of 2021 were $99.6 million, compared to $106.2 million in the first quarter of 2020.
USA Compression Partners LP’s distributable cash flow was $52.6 million in the first quarter of 2021, compared to $54.7 million in the first quarter of 2020. Its distributable cash flow coverage was 1.03× in the first quarter of 2021, versus 1.08× in the first quarter of 2020.
Eric D. Long, president and CEO, commented, “The first quarter of 2021 came in fairly consistent with the fourth quarter of 2020, reflecting what we expected would be a period of stability as we started the year.”
Long added, “With overall domestic natural gas production increasing modestly, we are now back at pre-COVID-19 levels, illustrating the importance of clean-burning natural gas to our country’s economy.” (Source: Ibid.)
For fiscal 2021, USA Compression Partners expects to report:
- Net income in the range of zero to $20.0 million
- Adjusted EBITDA in the range of $385.0 to $405.0 million
- Distributable cash flow in the range of $193.0 to $213.0 million
The Lowdown on USA Compression Partners LP
USA Compression stock took a big hit during the coronavirus-fueled sell-off in March 2020. Despite the economic uncertainty, the company reported solid fourth-quarter 2020 and first-quarter 2021 results. In fact, natural gas production is now back to pre-COVID-19 levels.
While the economic recovery takes hold, USA Compression Partners LP has said it will continue to focus on things within its control, namely capital spending and expense management. During the recovery period, investors can take solace in knowing that USAC stock continues to pay huge quarterly dividends.
