Crestwood Equity Partners (NYSE: CEQP) had been the best-performing midstream company this year, generating a total return of more than 60% by September. However, the recent slump in the broader market, as well as the drop in oil prices, have weighed on units of the MLP; they have fallen about 25% off their recent high, reducing their total return to a still-impressive 25%. That sell-off has pushed Crestwood's yield back above 8%, making it a compelling high-yield stock to buy this month, especially given the growth it has coming in 2019.
A high yield backed by strong financials
What makes Crestwood's high-yielding distribution so attractive right now isn't just its size, but its safety, too. The midstream company currently generates very predictable cash flow given that long-term contracts support more than 85% of its earnings. Because of that, it has limited exposure to commodity price volatility, which is what has weighed on units in the last few weeks.
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Meanwhile, the company complements its stable cash flow with a conservative financial profile. That includes covering its high-yielding payout with cash flow by more than 1.2 times, and keeping its leverage ratio to around 4.0 times while aiming to finance expansion spending internally. Because of those factors, the company's payout is on a firm foundation.
Hitting the accelerator
While Crestwood's rock-solid high yield is reason enough to buy, what makes it even more attractive is the upside ahead. The company is currently investing around $600 million into expanding its midstream assets in the Bakken, Powder River Basin , and Delaware Basin .
In the Powder River Basin, the company is working with natural gas pipeline giant Williams Companies (NYSE: WMB) to expand their Jackalope system, which will support the growth of Chesapeake Energy (NYSE: CHK) . Williams and Crestwood are currently increasing the capacity of their Bucking Horse gas processing plant, constructing a second facility, and building additional gathering pipelines. That infrastructure will enable Chesapeake Energy to double its production volumes in the region next year.
Meanwhile, Crestwood is building out two gas-gathering systems in the Delaware Basin, including one with Shell Midstream Partners (NYSE: SHLX) to support the growth of Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) and Halcon Resources (NYSE: HK) , which recently purchased land in the region from Shell. In addition to those pipelines, Crestwood recently finished the Orla gas processing plant and is already looking into building a second facility given the anticipated production growth from Shell, Halcon, and others in the coming years.
These and other growth drivers have Crestwood on pace to increase its cash flow per unit by a 15% compound annual rate through 2020. That acceleration should start showing up in the company's fourth-quarter results, which is another reason why now is a great time to buy. Meanwhile, that rising cash flow stream could enable the company to begin returning even more money to investors next year.
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Income and growth for a great price
Typically, a company with a rock-solid income stream and visible growth prospects would sell for a premium price. However, even after its rebound this year, Crestwood is still relatively cheap, especially in light of its recent sell-off. With units of the MLP currently selling for less than $30, they trade for around nine times projected 2019 earnings, which is well below the 11 times average of its peer group.
The potential for high-octane total returns
Crestwood has been pulled down by the recent market downdraft, which makes it a great buy this month. Investors can now lock in a higher yield, and they have even more upside potential given the company's growth prospects and still-cheap valuation. Those three factors set it up to continue delivering strong total returns in the coming years.
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Matthew DiLallo owns shares of Crestwood Equity Partners LP. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .