Magellan Midstream Partners, L.P. (MMP) engages in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. It operates through Refined Products and Crude Oil segments.
On the other hand, financial service holding company OneMain Holdings, Inc. (OMF) engages in the consumer finance and insurance businesses. The company originates, underwrites, and services personal loans secured by automobiles, other collateral, or unsecured.
Stock markets witnessed a freefall in the first half of 2022, marking a record worst performance since 1970. With more aggressive rate hikes anticipated in the coming months, recession fears are now rife, and the overall economic outlook looks grim. The U.S. economy registered negative growth in the first quarter, and the Atlanta GDPNow model expects growth deceleration in the second quarter as well.
Amid the market uncertainties, dividend investing could be an ideal strategy to ensure a stable income stream. Investors' interest in dividend stocks is evident from iShares Core High Dividend ETF’s (HDV) marginal year-to-date gains against the broader market losses. JPMorgan Chase & Co. upgraded shares of MMP from a “neutral” rating to an “overweight” rating and upped their price target for the company. Also, J.P. Morgan analyst Richard Shane maintained a Buy rating for OMF.
MMP has lost marginally over the past year, while OMF has lost 32.4%. Moreover, MMP has lost 8% over the past month and gained 3.8% year-to-date, while OMF has lost 10.5% over the past month and 23% year-to-date.
But which stock is a better buy? Let’s find out.
Latest Developments
On May 5, 2022, Aaron Milford, MMP’s recent CEO, said, “I am grateful for the opportunity to lead Magellan into the future and will continue to focus on the overarching goal of maximizing long-term investor value, while retaining our strong financial position and proven disciplined approach to serve our nation’s critical energy needs for decades to come.”
On the other hand, on May 3, 2022, OMF closed its second Social Bond issuance, a $600 million ABS Bond. This transaction aims to promote financial inclusion and offer loans to the less fortunate borrowers residing in rural communities (75% of lower-income borrowers with annual net income less than or equal to $50,000).
Recent Financial Results
MMP’s total revenue increased 6.9% year-over-year to $674.70 million for the first quarter ended March 31, 2022. However, its net income came in at $165.50 million, down 25.2% year-over-year, while its EPS came in at $0.78, down 21.2% year-over-year. Also, its adjusted EBITDA decreased 2.2% year-over-year to $336.60 million.
OMF’s net interest income increased 5.5% year-over-year to $870 million for the first quarter ended March 31, 2022. However, its net income came in at $301 million, down 27.1% year-over-year, while its EPS came in at $2.36, down 22.9% year-over-year.
Dividend Payouts
MMP has increased its dividend payouts for 20 straight years. Over the last three years, MMP’s dividend payouts have grown at a 1.7% CAGR. While MMP’s four-year average dividend yield is 8.01%, its current dividend translates to an 8.61% yield.
On the other hand, OMF has increased its dividend payouts for two consecutive years. OMF’s four-year average dividend yield is 12.49%, and its current dividend translates to a 9.87% yield.
Past and Expected Financial Performance
MMP’s EPS declined at a CAGR of 11.3% over the past three years. Analysts expect MMP’s revenue to increase 4.5% in the current year and 7.4% next year. The company’s EPS is expected to fall by 4.7% in the current year and increase by 9.9% next year. Moreover, its EPS is expected to grow 7.5% per annum over the next five years.
On the other hand, OMF’s revenue and EPS increased at a CAGR of 11.3% and 37.9%, respectively, over the past three years. Analysts expect the company’s revenue to increase 11.2% in the current year and 3.4% next year. The company’s EPS is expected to decline 18.6% in the current year and grow 3.1% next year. Also, its EPS is estimated to grow 15.8% per annum for the next five years.
Profitability
MMP’s 48.89% gross profit margin is lower than OMF’s 94.25%. Also, MMP’s 33.36% net income margin is lower than OMF’s 36.74%.
However, MMP’s ROE and ROA of 43.01% and 6.86% compared with OMF’s 37.58% and 5.58%, respectively.
Valuation
In terms of forward P/E, MMP is currently trading at 11.47x, higher than OMF’s 4.42x. In addition, MMP’s trailing-12-month P/S of 3.76x is 144.2% higher than OMF’s 1.54x.
Thus, OMF is the relatively affordable stock here.
POWR Ratings
OMF has an overall rating of B, equating to Buy in our proprietary POWR Ratings system. On the other hand, MMP has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Both the stocks have a B grade for Quality. OMF’s trailing-twelve-month gross profit margin of 94.25% is 46.2% higher than the industry average of 64.46%. On the other hand, MMP’s 48.89% trailing-12-month gross profit margin is 23.8% higher than the industry average of 39.51%.
OMF has a C grade for Growth, consistent with its stable revenue and EPS growth in the past few years and mixed performance in its last reported quarter. On the other hand, MMP has an F grade for Growth, in sync with its declining bottom line over the past few years.
Of the 46 stocks in the Consumer Financial Services industry, OMF is ranked #4. On the other hand, MMP is ranked #27 out of 34 stocks in the MLPs - Oil & Gas industry.
Beyond what we’ve stated above, we have also rated the stocks for Value, Momentum, Stability, and Sentiment. Click here to view OMF ratings. Get all MMP ratings here.
The Winner
Both MMP and OMF are J.P. Morgan’s picks for investors amid the current market situation, thanks to their high dividend payouts and broad profit margins. However, OMF’s attractive valuations and higher dividend yield make it the better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Consumer Financial Services industry here and the MLPs – Oil & Gas industry here.
MMP shares were trading at $47.22 per share on Tuesday afternoon, down $0.96 (-1.99%). Year-to-date, MMP has gained 5.99%, versus a -19.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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