However, EV Energy Partners, L.P. (NASDAQ:EVEP) is investing some $335 million-to-$395 million in two Utica-based midstream ventures, Utica East Ohio and Cardinal Gas Services, which, along with EV Energy’s Utica overriding royalty interest (ORRI), will help boost future distributable cash flow (DCF) growth. A contribution of these assets to EV Energy’s DCF could be as high as 40% within five years. However, challenges will abound in the near term. Even though EV Energy Partners, L.P. (NASDAQ:EVEP) holds some 905 Bcfe in total proved reserves—out of which 67% is gas—the partnership’s average daily production has stopped growing, after several years of robust average daily output growth. Its cash distribution has also been marginally expanding since 2009, with the distribution coverage resting around 1.07x in 2012. This year, due to a projected decline in DCF, the coverage ratio will sink below parity. Hence, the stock looks like a risky bet at present that would appear more appropriate when the picture of the Utica assets monetization improves. EV Energy Partners, L.P. (NASDAQ:EVEP) yields 7.5%.
Time Warner Cable
Time Warner Cable Inc (NYSE:TWC), the second largest U.S. cable provider, also made the list of Omega Advisors’ new first-quarter picks. The company has strong free-cash-flow growth and is returning increasing amounts of cash to its shareholders through higher dividends and share buybacks. Despite some headwinds in terms of lower residential video subscribers, its residential services revenue is increasing—in the previous quarter it was driven by higher average revenue per subscriber in the high-speed data services. Its business services revenue is growing smartly (25% year-over-year in Q1 2013). Future growth will be driven by both higher net-subscriber counts and average revenue per user, as the company plans to scale back on its discounts and promotions.
Still, Time Warner Cable Inc (NYSE:TWC) will continue to face challenges from rising programming costs and the customer migration to the Internet video streaming service providers and lower-cost alternative competitors such as Netflix and phone companies such as Verizon Communications and AT&T. (However, in a push to penetrate into the online video streaming market so as to gain ad revenue, the company is bidding for Hulu, owned by News Corp. and Disney.) Compared to its archrival Comcast, the Time Warner Cable Inc (NYSE:TWC) stock also has a lower long-term EPS CAGR, which justifies a lower multiple for Time Warner Cable at 14.2x forward earnings versus Comcast’s 16.6x.
We like Time Warner Cable Inc (NYSE:TWC)’s capital deployment strategy focused on boosting shareholder returns through a combination of higher dividends and share repurchases. Its dividend grew by 62.5% cumulatively since the beginning of 2010, so its payout ratio is 40% of the current-year EPS estimate. Given the company’s projection of a $2.3 billion in free cash flow in 2013—which translates into $7.9 per share—the dividend payout ratio stands at a lower 33%, leaving much more room for future dividend growth. Moreover, as regards share buybacks, Time Warner Cable’s stock buybacks totaled $660 million in the first quarter, with some $1.6 billion remaining under the repurchase authorization as of March 31, 2013. With a potential Hulu acquisition, Time Warner Cable Inc (NYSE:TWC) would look like a much stronger growth play. Time Warner Cable shares are yielding 2.7%.
Final thoughts
Following the best hedge funds can pay off in the long run, and Leon Cooperman is easily among the smart money’s top tier. Time Warner Cable Inc (NYSE:TWC), EV Energy Partners, L.P. (NASDAQ:EVEP), Occidental Petroleum Corporation (NYSE:OXY), and LyondellBasell Industries NV (NYSE:LYB) all pay dividends in some form or another for yield-seeking investors, and the support of a mammoth investor only adds to their allure.
Disclosure: none
