I remain intrigued by what I see as an investor hatred of
stocks of companies that own infrastructure assets, primarily assets that
support the energy sector.
Despite solid earnings reports, and growing cash flow
coverage of dividends, share prices in the group remain low and fall even
farther on any piece of perceived negative news. It has been frustrating to own
stocks in this sector, yet any review of financial results shows that many of
the companies are doing well, and the stocks are deeply undervalued.
I have thought and wondered what might trigger a renewed interest in energy infrastructure stocks, and what might trigger a rebound in share values. Personally, and for my Dividend Hunter readers, I am comfortable adding shares on the cheap if my analysis shows the dividends are sustainable.
However, I wouldn’t complain if share prices started to move higher, and yields came down back to more believable levels. I think it could be the very high yields themselves that scare investors away from these stocks.
One potential for share price gains is buyout transactions
by private equity making offers to acquire whole publicly traded companies. The
private equity money wants to own infrastructure assets that throw off huge
cash returns. Its the general investing public that is having a hard time
seeing the value of these companies after recent share value struggles.
Recently Ive had my eye on three high-yield stocks where
the potential of a buyout offer is very much on the table.
This is an easy one. Last week Macquarie Infrastructure
Corporation (MIC) made an official announcement that it intends to actively
pursue strategic alternatives including a sale of the Company or its operating
businesses as a means of unlocking value for shareholders.”
The MIC share price jumped 8% with this press release.
During the earnings call, management said that it would take the rest of 2019
and into the early months of 2020 to evaluate the options. Any deal could push
the share price 10% to 20% higher.
While waiting, management also confirmed the $1.00 per share
quarterly dividend would continue through 2020 unless a deal was finalized.
That big dividend gives MIC a current 9.3% yield.
Related: This Energy Company Paying a 13.2%
Yield Could Raise Dividends Before the Next Ex-Div Date
Tallgrass Energy LP (TGE), currently trading at
$18.60, has recently been offered $19.50 per share in a take private offer by
Blackstone Infrastructure Partners. Earlier in the year, Blackstone acquired
the Tallgrass general partner interest.
Now it wants the operations of the company. This is a stock
that traded in the mid-$20s earlier this year, and the $19.50 is a low-ball
offer that should get negotiated higher by the special Tallgrass Board of
Im looking for a final offer of at least $24 per share.
In the meantime, the TGE dividend increases each quarter,
and the current yield is 11.8%.
NGL Energy Partners (NGL) traded for as much as
$15.40 per share in the 2019 third quarter. Nothing has changed concerning the
companys prospects, yet now shares are trading hands at $11.20.
With a $1.4 billion market cap, NGL could be scooped up by
any number of well-heeled private equity firms.
The $0.39 per share quarterly dividend is secure, despite
the 14% yield.
Even if an offer is not made for NGL, the large share price
swings in this MLP make it easy to swing a trade for significant capital gains.
A climb back up to $15 works out to a 35% gain from the
current value. This is a very real possibility and while we wait we get paid
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