In his Forbes Dividend Investor, income investing specialist John Dobosz looks for stocks that show superior rates of both dividend growth and revenue growth, as well as for high yields and low payout ratios.
Operating cash flow over the past 12 months must be positive, and sufficient to cover the dividend. They also trade at discounts to multiple five-year average valuation measures that include price to sales (P/S), price to book value (P/BV), price to current year expected earnings (P/E), price to cash flow per share (P/CF), and enterprise value/EBITDA.
Our latest new addition to our model portfolio is Houston, Texas-based BP Midstream Partners, L.P. (BPMP). The company is a fee-based, growth-oriented master limited partnership formed in May 2017 by BP Pipelines to own, operate, develop and acquire pipelines, terminals, and other midstream assets, to store or transport crude oil, natural gas, and refined products.
BPMP feeds onshore crude oil production into BP’s Whiting Refinery in northwest Indiana, the sixth largest refinery in the U.S., and then moves the refined gasoline out to gas stations and distribution hubs. It also moves and stores offshore crude oil and natural gas production in the Gulf of Mexico.
Revenue this year is expected to come in at $125.5 million, down 2.6% from 2020. Earnings are forecast to come in at $1.57 per unit, down 1.8% from last year. Discounted valuations relative to history reflect the outlook for flat to lower numbers this year.
BPMP trades for 8.1 times expected earnings, which is more than 23% below the four-year average P/E of 10.6 times earnings. Similarly sized discounts persist in BPMP’s current price multiples of sales and book value.
With $1.78 per unit in free cash flow over the past 12 months, BPMP is quite capable of sustaining its current pace of $1.39 in annual distributions, which have grown 9% annually since 2018. The ex-distribution date for the next $0.3475 payout is this Wednesday, April 28.
Regarding ownership of MLPs inside of an IRA, you will need to pay taxes on the amount of unrelated business taxable income (UBTI) in your account exceeding $1,000. Not all of the distribution is taxable; the amount of UBTI is disclosed in the K-1 filing received from the partnership.