Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Over the past 5 years, Tallgrass Energy Partners LP (NYSE:TEP) has returned an average of 6.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at Tallgrass Energy Partners in more detail. View out our latest analysis for Tallgrass Energy Partners
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How does Tallgrass Energy Partners fare?
Tallgrass Energy Partners has a trailing twelve-month payout ratio of 88.99%, which means that the dividend is covered by earnings. Going forward, analysts expect TEP’s payout to increase to 102.73% of its earnings, which leads to a dividend yield of around 8.51%. However, EPS is forecasted to fall to $2.96 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. This also brings about uncertainty around the sustainability of the payout ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Tallgrass Energy Partners as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Tallgrass Energy Partners has a yield of 8.71%, which is high for Oil and Gas stocks.
Taking all the above into account, Tallgrass Energy Partners is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three key aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for TEP’s future growth? Take a look at our free research report of analyst consensus for TEP’s outlook.
- Valuation: What is TEP worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TEP is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.