A CEO and A Board Member Bought This High Dividend Stock
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Filings with the SEC have disclosed that two insiders at Access Midstream Partners (NYSE: ACMP) bought the stock on December 24. CEO Michael Stice bought 9,000 shares at an average price of $33.60 per share- increasing his direct stake in the company by about 50% to a little over 27,000 shares- while Board member David Daberko now owns a little over 14,000 shares after buying 6,000 shares of the stock at a slightly lower price. Access Midstream currently trades at $32.70, down just a bit from where these insiders bought. Studies show that stocks bought by insiders tend to beat the market- though not always- and this makes sense to us as insiders should prefer to diversify their investments unless they are particularly confident in the stock (read more about studies on insider trading). Our reading of academic work on insider trading has convinced us that seeing multiple insiders buy, as has happened here, is a particularly interesting signal. Learn more about consensus insider purchases.
Access Midstream, unsurprisingly, operates gathering and other midstream services for natural gas in the onshore U.S., where a boom in natural gas production has somewhat outpaced available infrastructure. Access Midstream recently purchased substantial midstream assets from Chesapeake Energy (NYSE: CHK); the company itself was a Chesapeake spinout in 2008, and was known as Chesapeake Midstream Partners until this past July. The most recent 10-Q showed revenue up 11% from the third quarter of 2011, though earnings growth was more modest and earnings per share actually declined slightly.
Access Midstream has increased its dividend payment each quarter since it began paying dividends in November 2010. That’s not a particularly long history of paying dividends, of course, but it is a good sign that the company has had enough cash to keep that streak going (though cash balances were low at the end of September, we can hope that if the company can buy assets it can make dividend payments). If we assume that it halts its dividend increases, the yield at current prices is 5.3%. That’s certainly high enough to merit consideration as an income stock even ignoring the potential for dividends to increase further. The beta is 0.3, so the stock would seem to have some downside protection from poor economic conditions as well. Valuation isn’t great with Access Midstream trading at 20 times consensus earnings for 2013, but we think that there are enough opportunities in its industry to at least protect its financials from deteriorating too much.
Other midstream companies include Valero Energy (NYSE: VLO), Murphy Oil (NYSE: MUR), and Hess (NYSE: HES). The dividend yields at these peers are considerably lower than at Access Midstream, with a high of about 2%. However, they look considerably better from a value perspective: their trailing P/E multiples are all in the teens or lower, with forward P/Es in the 7-11 range. Net income is down strongly at Valero and Murphy, however; while Wall Street analysts seem confident in a recovery, and even at these lower earnings levels the stock doesn’t look that expensive, that may be enough to avoid buying the stock. Hess experienced high earnings growth last quarter versus a year earlier, and though revenue growth was more modest the stock might be worth considering given its cheap valuation. Chesapeake itself trades at 12 times forward earnings estimates, and has done a decent job of selling off many of its assets to improve its financial position. However, we still don’t think that it’s a good investment (see why we don't like Chesapeake).
We’re not sure how the acquisition of some of Chesapeake’s assets will impact Access Midstream; M&A tends to destroy shareholder value, but it is at least positive that multiple insiders are buying the stock. The dividend yield is high and we even though the earnings multiples are as well we would expect income investors to be interested in taking a closer look.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in CHK. The Motley Fool has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, and short JAN 2014 $15.00 puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!