Oil prices have tumbled. Therefore Energy-related stocks have fallen. USA Compression Partners (NYSE: USAC) has fallen a stunning 28% since start of June. If USAC keeps paying the same dividend it produces a 15% yield.
The company provides compression equipment that allows customers to move natural gas through pipelines. USAC’s distributable cash flow, which is how we measure cash flow for limited partnerships, grew steadily until last year, when it flattened out. However, in 2018, distributable cash flow is forecast to grow 53%.
In 2017, USA Compression paid out nearly all of its distributable cash flow. This year, the company is forecast to have a much wider cushion, paying out just 69% of its distributable cash flow to its investors.
The company has paid a distribution only since 2013. So its dividend history is short. It raised the distribution every quarter from May 2013 until August 2015. It has maintained its USD 0.525 quarterly distribution since then. The distribution has never been cut, distributable cash flow is now on the rise again and its pay-out ratio is low. The current 15% yield looks pretty safe. At least for the near future.
Sven Franssen