EnLink Midstream's 4.7% Yield, and Buyback and Option Plays Find Value Buyers

EnLink Midstream (ENLC) transports and stores natural gas mainly in West Texas and Louisiana. Investors are finding its4.7% dividend yield attractive. Moreover, the company is buying back large amounts of its common stock. Lastly, ENLC stock has good option income plays.

Right now EnLink pays an 11.25 cents quarterly dividend, giving the stock an 4.68% annualized yield at today's price of $9.62 per share (i.e., $0.45/9.62). 

A total Yield of 8.5% Is Secure

Moreover, EnLink's dividend seems secure as analysts expect the company to make 53 cents per share in 2022 and up to 58 cents next year. That more than covers the annual 45-cent dividend payment.

To underscore this, EnLink reported that its free cash flow after distributions (FCAD) was $67.5 million during Q2. That means that it had plenty of money left over from dividends to do buybacks and reduce debt.

For example, management said during the Q2 earnings call that they plan on buying back $150 to $200 million of its common stock this year. That works out to as much as 3.85% of its $5.2 billion market capitalization.

This gives investors in ENLC stock a total yield of more than 8.5% (i.e., 4.68% dividend yield and 3.85% buyback yield).

Attractive Option Income Plays

ENLC stock has attractive out-of-the-money covered call income plays, as well as cash-secured income plays. For example, the Nov. 18 $11.00 strike price trades for 20 cents, as the Barchart chain table shows below.

This means that an investor can buy 100 shares of ENLC stock at $9.62 for $962 and receive $20 immediately for the Nov. 11 strike price at $11.00 per share. That represents a return of 2.08% or 24.9% annually. Even if the stock rises to $11.00 by Nov. 11, the investor would make a capital gain of 14.3%. This is on top of the 2.0% covered call yield already made.

Moreover, if investors were to sell puts at $8.00 per share, they can make 20 cents per share.

 That means if an investor puts up $800 with their brokerage firm, and sells one put contract at $8.00, they will receive $20 immediately. That represents a 2.50% return or 30% annually.

However, the cash-secured put investor won't make a capital gain. That is why investors sometimes make both of these plays at the same time. That way they can still potentially earn dividends, benefit from buybacks and make income from both the out-of-the-money option income plays. In addition, they may be able to benefit from the stock rising as well.

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