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These 3 High-Quality, High-Yield Stocks Went on Sale This Month

Matthew DiLallo, The Motley Fool

March has been a rough month for the stock market, which has bounced all over the place due to several worries. Among the hardest-hit stocks were energy master limited partnerships, many of which tumbled on interest rate, tax, and steel tariff fears. While those issues will impact some of these companies, investors sold off the sector rather indiscriminately.

As a result, several high-quality, high-yielding MLPs went on sale. Three that stand out are Noble Midstream Partners (NYSE: NBLX), Holly Energy Partners (NYSE: HEP), and Spectra Energy Partners (NYSE: SEP).

Hands holding a tablet computer with big sale writing on the screen.

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High growth goes on sale

Noble Midstream Partners was one of the best-performing MLPs in 2017, delivering a sensational 44% total return in its first full year as a public company, which was quite impressive considering that most MLPs lost value last year. Fueling Noble's outperformance was a string of acquisitions, which quickly grew cash flow, enabling the company to boost its distribution 24% in the past year.

The MLP's red-hot units, however, have taken a breather over the past month, slumping about 11% and pushing the yield up to nearly 4.3%. That's one of the higher-quality distributions in the space since Noble covered it with cash flow by 2.4 times last quarter and had a leverage ratio of just 1.9 times. For perspective, those levels are twice as good as most rivals'. Meanwhile, the company has enough fuel in the tank to hike its payout at a 20% annual pace through 2022, while maintaining top-tier coverage and leverage metrics. That growth, now for a lower price, makes this income stock one to consider for the long haul.

Plenty left in the tank

Holly Energy Partners has also lost about 11% of its value over the past month. Consequently, this impressive income stock now yields nearly 9.6%. The company, which has upped its payout for 53 straight quarters, expects to keep that streak alive this year, guiding for a 4% increase spread over the next four quarters.

On the one hand, Holly Energy Partners expects to barely cover its payout with cash flow this year, which is a bit of a concern. However, the company anticipates that coverage will rise in the second half of the year due to contractual increases. Furthermore, it has some expansion projects underway, as well as the financial flexibility to make acquisitions, which could bolster cash flow in the coming years. So it should be able to slowly lift its high-yield payout in the future, making it a solid option for income seekers. 

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Image source: Getty Images.

Much ado about nothing so far

Spectra Energy Partners has taken one of the biggest hits over the past month, slumping 17% and boosting its yield to 8.7%. The main issue stems from a government policy change, which could impact its ability to collect taxes along with the cost-of-service fees it charges on some of its pipelines. However, the company doesn't expect this change to affect cash flow this year nor have any material impact in the future.

Because of that, Spectra Energy should be able to continue increasing its distribution as it has for the past 41 consecutive quarters. In fact, it currently expects to raise the payout 7% this year and at a 4% to 6% annual pace in 2019 and 2020. It also plans to deliver that growth while covering its payout with cash flow by a comfortable 1.1 to 1.2 times over the next three years. That margin of safety should give it ample breathing room even if the tax issue impacts cash flow more than the company anticipates right now.

A good time for income seekers to go bargain hunting

With MLPs selling off over the past month, income investors can capture some compelling opportunities these days. These companies, in particular, stand out because all slid by double digits despite high-quality payouts that are forecast to climb over the coming year. Those rising income streams provide Noble Midstream Partners, Holly Energy Partners, and Spectra Energy Partners the potential to deliver healthy total returns from here.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Spectra Energy Partners. The Motley Fool has a disclosure policy.