Collect Rising Payouts from This Top Dividend Stock
Today’s top dividend stock highlights a company that has raised its payout eight times in just two years, Rice Midstream Partners LP (NYSE:RMP).
I know what you are thinking: Rice Midstream Partners is in the energy sector, which is not exactly known to be the best place for investors right now. Due to the downturn in oil and gas prices, even some of most well-known players in the business have cut back their dividends. And some have shut down operations altogether.
The thing is, though, despite the current commodity price environment, Rice Midstream Partners is still running a solid business.
The partnership was created by Rice Energy Inc (NYSE:RICE) to own, operate, develop, and acquire midstream assets in the Appalachian Basin. It started out with gathering, compression, and dehydration assets located in Washington and Greene counties in Pennsylvania, serving producers in the rapidly developing dry gas core of the Marcellus Shale.
The partnership’s affiliation with Rice Energy is critical to the stability of its business. It has secured dedications from Rice Energy under a 15-year, fixed-fee contract for gathering and compression services. The contract covers approximately 63,000 gross acres of Rice Energy’s position in Washington and Greene Counties, Pennsylvania. Moreover, if Rice Energy acquires future acreage within the specified areas, the gathering and compression will be done by RMP.
Other than Rice Energy, RMP has also secured fixed-fee contracts with third-party customers for gathering and compression services in Washington County, Pennsylvania. These contracts cover around 21,000 gross acres. And just like Rice Energy, these third-party clients will use RMP’s service on any future acreage they acquire within the area.
By having long-term, fixed-fee contracts, Rice Midstream Partners is set to generate a recurring cash flow.
Growing Financials
(Source: “Investor Presentation May 2017,” Rice Midstream Partners LP, last accessed June 6, 2017.)
As these charts show, Rice Midstream Partners has grown its throughput and financials significantly over the last several years. In particular, the partnership’s distributable cash flow grew from $57.0 million in 2015 to $143.0 million in 2016. The number is expected to increase another 15% to $165.0 million in 2017.
A growing distributable cash flow is one of the best things for investors in master limited partnerships (MLPs). This is because MLPs that can generate higher distributable cash flows usually increase their payout accordingly.
In the case of Rice Midstream Partners, note that it is a relatively new stock on the market. The partnership completed its initial public offering (IPO) in December 2014. The first distribution was a prorated cash distribution paid in February 2015. The amount corresponds to a quarterly distribution rate of $0.1875 per unit.
After the first full quarterly payment made in May 2015, this top dividend stock has raised its payout every single quarter. In other words, in the past 24 months, investors of Rice Midstream Partners have received eight dividend checks, with each check bigger than the last. (Source: “Distribution History,” Rice Midstream Partners LP, last accessed June 6, 2017.)
The partnership’s current quarterly distribution rate is $0.2608 per unit, translating to an annual dividend yield of 4.25%.
If you are wondering if the current payout is safe, note that, in the first quarter of 2017, the partnership generated distributable cash flow of $42.4 million. This resulted in a distribution coverage ratio of 1.52 times, leaving a sizable margin of safety. (Source: “Rice Midstream Partners Reports First Quarter 2017 Results and Provides Three-Year Outlook,” Rice Midstream Partners LP, May 3, 2017.)
The Bottom Line on This Top Dividend Stock
According to RMP’s guidance, the partnership is targeting annual distribution growth of 20% through 2023 while maintaining a distribution coverage ratio of 1.4 times. For investors of this top dividend stock, the best could be yet to come.