While natural gas services remains the primary business function, DCP generates about 25% of its cash flows from wholesale propane and natural gas liquids logistics segments.
President and CEO Mark Borer has been charged with running the firm since 2006, when he left a leadership role at the parent company. He and the rest of the management team have clearly defined the partnership’s strategy into a three-fold objective: acquire, build and optimize.
DCP grows largely through acquisitions, choosing to focus on opportunities that are immediately accretive and either open new geographic markets or add to existing locations.
The “build” portion of its objective involves capitalizing on organic growth opportunities such as building out new pipeline operations, expanding drilling efforts to increase natural gas volumes, and construction of new propane terminals.
Lastly, management is focused on optimizing the profitability of existing assets through operating efficiencies and adding marketing opportunities.
DCP Midstream has purposely built out its facilities and pipelines to include excess capacity, which has allowed DCP to contract for new supplies of natural gas at minimal incremental costs compared to many of their competitors. Management has been able to grow both revenues and operating income by double digits during the past five years and operating cash flow four out of six years since going public.
DCP participates in an aggressive hedging program to not only help manage the volatility of future natural gas prices, but also to bring stability to quarterly cash flows as well.
Despite the variability of natural gas prices, DCP’s focus on acquisitions and operating efficiency has helped it deliver nearly 34% annual earnings growth during the past five years. Morningstar analysts are expecting cash flows to continue to grow at roughly 20% per year for the next several years because of favorable processing margins and recent acquisitions.
In addition to capital appreciation that has sent shares to a new all-time high last week, DPM stock provides an annual dividend of $2.56 per share, or 5.7%. That’s a good yield for a solid producer, and it’s trending higher, with the company increasing dividends for four consecutive quarters. Put DCP Midstream in your pipeline.