5 Extreme Dividend Stocks With Upside Potential

4. Antero Midstream Corporation (NYSE:AM)

Number of Hedge Fund Holders: 16

Forward Dividend Yield: 8.20%      

Antero Midstream Corporation (NYSE:AM) owns and operates midstream energy infrastructure. Over the last year, the stock has returned more than 77% to investors. The company also has strong fundamentals, beating market predictions on earnings per share and revenue in the second quarter. Earlier this week, it declared a quarterly dividend of $0.225 per share, in line with previous. 

Antero Midstream Corporation (NYSE:AM) has a market cap of over $5 billion and posted more than $970 million in revenue last year. The company was founded in 2013 and employs more than 500 people. 

At the end of the second quarter of 2021, 16 hedge funds in the database of Insider Monkey held stakes worth $106 million in Antero Midstream Corporation (NYSE:AM), down from 17 in the previous quarter worth $123 million.

In its Q4 2020 investor letter, Bonhoeffer Capital Management, an asset management firm, highlighted a few stocks and Antero Midstream Corporation (NYSE:AM) was one of them. Here is what the fund said:

“Public LBOs (32% of Portfolio; Quarterly Average Performance +25%)

This includes our broadcast TV franchises, leasing and roll-on/roll-off (RORO) shipping, and our natural gas pipeline firm. One trend in these levered firms is the increasing spread between bond yields and the firms’ free cash flow yield.

An example is Antero Midstream, whose FCF yield was 15% as of December 31, 2020, with a debt yield of 6% with the bond/equity FCF spread of 9%. This is a large spread given that Antero Midstream has completed its backbone infrastructure and gathering investment and capital expenditures should be small going forward. With natural gas prices rebounding, Antero Midstream cash flows become more secured as Antero Resources has more cash flow cushion in making payments to Antero Midstream. The recovery in natural gas prices is expected to continue as the economy opens up and low oil prices have shut down Permian oil wells that were generating almost-free associated natural gas. Antero Midstream’s FCF yield of 15% is also higher than similarly secured Antero subordinated debt with a yield of 7.8%.”