2 very high yielding energy stocks to buy for 2023 and beyond


While the Federal Reserve has raised interest rates this year, most investments still offer a relatively unattractive income yield. For example, the dividend yield of the average stock in the S&P500 is currently around 1.6%. This makes it difficult for income-oriented investors to derive much income from their investments.

However, there are attractive income stocks. Several Master Limited Partnerships (MLPs) offer significant returns these days. Two that stand out are Crestwood Equity Partners (CEQP -1.78%) and Energy transfer (AND 1.16%), which are currently offering monster yields. On top of that, they have catalysts coming over the next year that could fuel strong price appreciation going forward. Add that to their high yields, and they could produce significant total returns in years to come.

Soaring free cash flow

Crestwood Equity Partners currently offers a payout yield of 9.7%. While such a high payout usually comes with very high risk, that’s not the case with Crestwood’s cast. It is evident in the Second quarter results recently released by MLP.

The company generated enough cash to cover its 1.7x super high yield payout. This allowed Crestwood to fund its entire capital program with over $1 million to spare. For the full year, Crestwood expects to cover its distribution program and increased capital spending following some recent acquisitions with a balance of $5 million to $45 million.

Crestwood believes these investments will pay big dividends next year. The company expects to generate strong free cash flow generation in 2023, driven by increased volumes and reduced capital expenditures. This should enable the MLP to achieve its long-term leverage goal. It should also allow the company to return more cash to investors through continued distribution growth — it increased its high-yield payout by 5% earlier this year — and its buyback program. These catalysts could give Crestwood the fuel to generate strong total returns in 2023 and beyond.

Catalysts Abound

Energy Transfer currently has a distribution yield of over 7%. This payment is based on an extremely solid base. Energy Transfer covered it with a super-comfortable 3.36x cash flow in the first quarter, which allowed it to keep another $1.5 billion in cash. The MLP used these funds to pay off another $290 million in debt, fund $390 million in expansion projects, and acquire underground storage assets.

This capital allocation strategy puts the MLP on track to achieve its leverage target over the next few quarters. This has allowed Energy Transfer to steadily increase its distribution. The company recently granted its investors another 15% raise. This is the third this year, bringing the total increase to 50%. Energy Transfer plans to continue to increase its distribution. MLP’s ultimate goal is to bring its payout back to its former peak, which is more than 30% higher than the recently increased level.

Energy Transfer could achieve this goal by next year. The company continues to fund its entire capital program with retained cash while paying down additional debt. With its leverage target at hand, the MLP will not need to retain as much excess revenue to reduce debt in the future.

In addition to these catalysts, the company is moving closer to approving some potentially thorny expansion projects. He seeks to finally sanction his Lake Charles LNG export terminal project and develop in the chemical sector. In addition to securing contracts with customers to secure future cash flows from these investments, Energy Transfer is also seeking financial partners to help fund part of the capital commitment. Success in securing these and other expansion projects could provide MLP with the fuel to eventually increase its payout well beyond its former peak. These growth drivers could help drive up its unit price in the years to come.

Get paid well while you wait for these catalysts to unfold

Crestwood Equity Partners and Energy Transfer have compelling catalysts that could help fuel strong price appreciation in 2023 and beyond. In the meantime, these MLPs are paying large distributions. This allows investors to be well paid while waiting for these catalysts to materialize.

Matthew DiLallo has positions in Crestwood Equity Partners LP and Energy Transfer LP and has the following options: October 2022 short sale of $8 on Energy Transfer LP. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.


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