NGL Energy Partners has shown a remarkable operational recovery, marked by enhanced business performance and a dedicated effort to reduce its debt. This positive shift positions the company's preferred stock, NGL.PR.B, as a compelling investment option. This preferred stock boasts an attractive 11.7% floating yield, which is well-supported by the company's free cash flow, with a conservative 51% payout ratio. Furthermore, the company's long-term water handling contracts and recent volume commitments provide a stable and predictable revenue stream, underpinning management's confidence in further strengthening its balance sheet.
Despite the improved outlook, the common shares of NGL Energy Partners continue to exhibit volatility, making them less suitable for investors with a low tolerance for risk. However, for those seeking a balance of high returns and a degree of safety, NGL.PR.B stands out as an appealing alternative. The robust coverage of preferred dividends by free cash flow, along with significant long-term commitments, suggests a resilient financial position, even in the face of potential macroeconomic challenges such as a recession.
The company's strategic focus on debt reduction and securing long-term contracts significantly mitigates risks for preferred shareholders. With $230 million in free cash flow against $117.4 million in preferred dividends over the last year, the financial metrics indicate a strong capacity to meet its obligations. This prudent management and operational efficiency underscore the attractiveness of NGL.PR.B as a high-yielding investment with a considerable margin of safety.
In an investment landscape that often prioritizes short-term gains, identifying opportunities that offer both substantial returns and foundational security is crucial. NGL Energy Partners, through its concerted efforts in operational efficiency and financial discipline, presents such an opportunity with its preferred stock. This demonstrates that diligent management and strategic foresight can create value for investors, offering a beacon of stability and profitability.