CQP - 1 Ultra-High-Yield Energy Stock to Buy Hand Over Fist and 1 to Avoid
Investing in high-yield stocks can be extremely lucrative, but they can be equally destructive if you pick the wrong ones. The biggest mistake investors make with high-yield stocks is buying yield traps, where a yield looks very high but is likely to get cut in the near future. Companies with incredibly high yields don't need to grow at double digits to be great wealth-compounding machines, but they do need a strong enough business to ensure dividend payments will last years into the future with some modest growth along the way.
If you are on the hunt for ultra-high-yield dividend stocks , then you have undoubtedly been looking in the energy sector , as there are dozens of stocks in this sector with yields over 6%. One to put on your radar is Cheniere Energy Partners (NYSEMKT: CQP) and its 6.5% yield. Conversely, if you run across Green Plains Partners ' (NASDAQ: GPP) 14.4% yield, you may want to look elsewhere. Here's why one of these looks like a solid buy while the other has some serious red flags.
Cheniere Energy Partners is a unique business. It is the subsidiary partnership of Cheniere Energy , which owns and operates one of Cheniere's two liquified natural gas (LNG) export facilities. This facility recently completed an expansion that allows it to produce and export about 30 million tons of LNG per year. So far, Cheniere has proven to be a top-flight operator that generates steady cash flows. Many will point to the contracts it has in place to export LNG as a sign of strength, but it is only part of the story. What is truly impressive is the company's ability to run the facility efficiently. Global utilization rates for LNG facilities tend to hove around 80% and require lots of downtime for maintenance. Cheniere has been able to maintain a 93% utilization rate and has actually increased the operational capacity 12% above the nameplate capacity of its facilities when they were originally designed.
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1 Ultra-High-Yield Energy Stock to Buy Hand Over Fist and 1 to Avoid