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3 stocks with high returns at high prices

Falling interest rates usually cause the prices of dividend-paying stocks to rise, which then pushes the return down. Although the recent decline in interest rates has contributed to large gains in many high-yield stocks, some continue to trade in rock bottom valuations. Therefore, income-seeking investors can still achieve a high return for a low price.

Three Dirt Cheap Return-Focused Stocks Worth Considering Are Midstream Companies Energy Transfer (NYSE: ET) MPLX (NYSE: MPLX) and Plains All American Pipeline (NYSE: PAA) . Here's why revenue investors want to see these energy companies more closely.

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A valuation of the bottom

The giant Energy Transfer pipeline is on track to generate between $ 1[ads1]0.8 and $ 11 billion in adjusted EBITDA this year, about 15% higher than 2018's level. With MLP's current value of $ 92.1 billion, that means Energy Transfer trades at an EV / EBITDA multiple of about 8.5 in the middle of the 2019 forecast. It's at the bottom of its peer group, with rivals trading between 9 , 6 times and 12.8 times EV / EBITDA.

This bottom price makes no sense. First, Energy Transfer's financial profile has improved significantly in recent years. For example, the company generated enough cash during the second quarter to cover its 9.3% dividend by 2 times. For the sake of comparison, most competitors are comfortable with coverage levels above 1.2. Meanwhile, Energy Transfer has an improved balance sheet with a debt to EBITDA ratio that is trending towards its target range 4.0-4.5. Add to that above-average growth prospects, and the company should sell for a much higher valuation. Since it does not, income investors can buy this high return energy for a ridiculously cheap price.

Same story, different name

MPLX also trades at a low valuation given its current EV / EBITDA ratio of 9.6. That makes it the second cheapest pipeline company in its peer group. Consequently, it pays an above average dividend, which today yields 9.4%.

Like Energy Transfer, the low relative valuation does not make much sense. That's because MPLX also has a well-supported dividend given its healthy coverage ratio of 1.36 times during the second quarter. Meanwhile, the company has a solid balance sheet supported by a low leverage ratio of 3.9.

In addition to its conservative economic profile, MPLX has compelling growth prospects. The company recently signed agreements to move forward with the Whistler project, which is a natural gas pipeline in the Permian Basin. It also recently agreed to become a partner in the Wink-to-Webster project, which is a Perm oil pipeline. On top of that, it expands the collection and processing operations in Perm and the export opportunities on the Gulf Coast. These expansion projects should allow MPLX to continue to increase its cash flow and dividend for health care over the coming years. Put it up, and MPLX's combination of a lucrative revenue stream and visible growth makes it a screaming bargain these days.

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Image Source: Getty Images. [19659008] Tell me you haven't heard all this before

Plains All American Pipeline is currently ranked as the third cheapest among the largest mid-stream companies with ten times EV / EBITDA. It's even cheaper on a free cash flow basis. With the oil pipeline on the verge of producing $ 2.80 per unit of distributable cash flow this year, and the units currently selling for $ 21 apiece, Plains All American trades at 7.5 times the cash flow. It is one of the lowest levels in the sector.

Again, the low valuation makes no sense. Plains All American, for example, generates enough money to cover its 6.9% distributed distribution by more than twice. Meanwhile, the leverage ratio was 2.8 at the end of the second quarter, which is comfortably below the target range of 3.0-3.5.

Plains All American compliments its strong economic profile with enticing growth prospects. The company is currently on track to increase its cash flow per unit by 14% this year. Meanwhile, it recently added five new projects to the backlog, including leading the development of Wink-to-Webster. Because of this, Plains All American believes it can increase its high return by at least 5% annual interest rate over the next few years. That is one of the many reasons why it is such an attractive investment these days.

Large revenue streams at an excellent price

Energy Transfer, Plains All American and MPLX are the three cheapest large mid-stream companies. It is difficult to justify the low valuations, as these companies have sound financial profiles and tempting growth prospects. Add to their high returns, and they are good options for income investors to consider buying.

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