When we talk about dividend payers, sometimes we have to be wary of yields that are too juicy... And that may be the case with the master limited partnership (MLP) we're looking at today - USA Compression Partners (NYSE: USAC). Its 13.3% distribution yield (MLPs pay distributions, not dividends) definitely piques interest, but checking under the hood reveals some issues... USA Compression Partners provides equipment and services to the oil and gas industry. Its compression machines keep pressure high in pipelines to move natural gas. The energy sector has had an unsteady year... Oil prices are rising, which might seem like a positive at first. But a mismatch between supply and demand due to a production crunch shows that this cyclical industry is still in recovery mode. Not only does USA Compression Partners find itself smack-dab in the middle of a turbulent energy market... but its services are also very niche. Still, despite issues brewing, USA Compression Partners makes rewarding shareholders a top priority... While others in this industry cut their distributions during the pandemic to tackle dangerous debt, USA Compression Partners kept up its distribution without any cuts, as it has since 2013. The danger here is whether the partnership is putting too much emphasis on its distributions. Over the past few years, the company had been growing its distributable cash flow (or the cash available to give out to shareholders). Distributable cash flow came in around $118 million in 2017, $177.8 million in 2018 and $220.8 million in 2019, and it increased (if only slightly) to $221.9 million in 2020. That's not the case this year, however, as its distributable cash flow is predicted to decrease to $213 million. That's still enough to cover its distributions - landing at a payout ratio of 96.67%. That's less than 100%, so it's safe for now, but just barely. (As a reminder, Chief Income Strategist Marc Lichtenfeld generally likes to see payout ratios of 75% or less with usual stocks, but Marc is comfortable with an MLP paying out as much as 100%.) At the same time, USA Compression Partners has seen its debt increase, and it has made no significant improvements to its balance sheet... |