DCP Midstream Partners (DPM) - Natural Gas Delivers Dividends

The energy sector particularly in the US contains some strong dividend payers. One of those niche players is DCP Midstream Partners (DPM), which yields 7.6% in dividends.

DCP Midstream Partners (DPM) is a limited partnership formed by DCP Midstream LLC to own, operate, acquire and develop a diversified portfolio of complementary midstream energy assets. The company gathers, processes, transports and markets natural gas and natural gas liquids (NGLs), and is a leading wholesale distributor of propane. Propane is used as a fuel for engines, gas torches, portable stoves and residential central heating.

DCP Midstream Partners (DPM) is a 50-50 joint venture between Spectra Energy (SE) and ConocoPhillips (COP), two other stocks which we have previously discussed from a high dividend yield perspective.

The company offers investors a dividend yield of 7.6% while trading on what could be considered a rich price to earnings (PE) multiple of 20 times historical earnings. However, one needs to bear in mind that the company is going through a high-growth period at the moment which might justify the PE multiple. Net income came in at $26 million for the most recent quarter, the highest it’s been this fiscal year.

The distribution policy of the group is that 100% of the cash held at the end of a quarter is distributed to shareholders and the general partner.

Reporting quarterly earnings in August, the company showed signs that it was continuing to ramp up its offering while still managing to reward shareholders with a 1.7% increase in the dividend.

In July the company closed an acquisition which expanded its wholesale propane business into the Mid-Atlantic by acquiring a marine import terminal and 20 million gallon above ground storage facility in the Port of Chesapeake, Virginia. It also acquired an additional 50% interest in the Black Lake NGL pipeline.

Earnings for the quarter were down from $32.4m for the three months ended June 30, 2009 to $26.2m while distributable cash flow for the quarter was $24.9m. There was however a dividend that was 1.7% higher than the previous quarter.

DCP Midstream Partners (DPM) won't be for all dividend seeking investors, but those looking for high growth and high yield stocks might consider the company as an alternative to obtain access to the energy sector, which is defensive by nature and can provide a steady flow of income over the long-term.