Top Dividend Stock to Think About
It was December 2014. Oil and gas prices had just plunged big time. One energy partnership named Rice Midstream Partners LP (NYSE:RMP) decided to go public.
What do you think happened afterward?
Well, with commodity prices still deep in the doldrums, you might think investors of this energy stock are getting killed. But that’s not really the case. Rice Midstream Partners not only survived the downturn but has returned a tremendous amount of value to investors over the last few years. Let me explain.
Headquartered in Pittsburgh, Pennsylvania, Rice Midstream Partners is a master limited partnership (MLP) that owns, operates, develops, and acquires midstream assets in the Appalachian basin. The partnership was created by Rice Energy Inc. (NYSE:RICE) and completed its initial public offering (IPO) on December 17, 2014.
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According to the partnership agreement, RMP is required to pay a minimum distribution of $0.1875 per unit every quarter. Its first distribution of $0.0204 per unit paid in February 2015 was a prorated amount corresponding to that minimum quarterly distribution requirement. (Source: “Rice Midstream Partners Declares Initial Quarterly Distribution,” Rice Midstream Partners LP, January 30, 2015.)
Given its involvement in the energy business and the persistently low oil and gas prices after its IPO, Rice Midstream Partners would be considered fortunate if it could maintain that distribution rate. But as it turns out, the partnership delivered much, much more.
Since May 2015, Rice Midstream Partners has raised its payout every single quarter. From its initial minimum quarterly distribution rate of $0.1875 per unit to today’s $0.2814 per unit, RMP’s per unit payout has increased by 50.1%. (Source: “Distribution History,” Rice Midstream Partners LP, last accessed December 29, 2017.)
The partnership also performed well when it comes to unit price. While many energy stocks are down by double digits since the commodity price downturn started, RMP stock has climbed 23.9% since its IPO.
The reason behind Rice Midstream Partners’ solid performance lies in the nature of its business. RMP does not drill any new wells; instead, it provides midstream services through its natural gas gathering, compression, and water assets to Rice Energy as well as to third party companies.
The neat part is, 100% of the partnership’s cash flow is supported by long-term, fee-based contracts. This allows RMP to run a stable business despite the volatility in commodity prices. (Source: “Investor Presentation,” Rice Midstream Partners LP, last accessed December 29, 2017.)
In fact, the partnership’s business has been growing. In the third quarter of 2017, Rice Midstream Partners’ gathering throughput increase nine percent sequentially, while compression throughput rose by an even more impressive 15%. Adjusted earnings before interest, tax, depreciation and amortization came in at $65.2 million, representing a 17% increase from the second quarter. (Source: “Rice Midstream Partners Reports Third Quarter 2017 Results,” Rice Midstream Partners LP, November 2, 2017.)
Here’s the best part: with a growing business, RMP will likely dish out bigger dividends in the years to come. Last month, the partnership updated its distribution guidance. RMP now expects its annual distribution growth rate to be in the range of 15% to 20% “for several years, including 2018.” It also expects to maintain a long-term distribution coverage ratio of 1.1 times. (Source: “EQT Midstream Partners and Rice Midstream Partners Announce Distribution Outlook for 2018,” Rice Midstream Partners LP, December 13, 2017.)
Trading at $21.45 apiece, RMP offers an annual yield of 5.3%. While there are stocks with even higher yields the market, the partnership’s rock-solid business, and consistent dividend growth makes it a top pick for income investors.