Dividend Stocks: Investors Can Get 5% Return On Magellan’s Buyout

Top dividend stock Magellan Midstream Partners (MMP) is getting acquired and investors can still cash in.

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The company — responsible for the transportation, storage and distribution of crude oil — has previously been a feature of IBD’s Income Investor by offering yields of upwards of 6%. That yield has come as a sweet extra for a stock that has already soared over 27% this year.

The big news sending shares higher was the announcement on May 15 that Magellan will be acquired by energy giant Oneok (OKE) in a cash and stock deal.

Per the terms of the deal, every Magellan shareholder will receive $67.50, of which 33% (or $25) will be distributed as cash with 67% as Oneok shares.

Deal Offers Sizable Return For Income Investors

With Magellan currently trading around 64, investors have the opportunity to earn a 5.4% return in a matter of months. The transaction is expected to close in the third quarter of this year.

On an annualized basis, this equates to a sizzling yield in the ballpark of 15%-20%. After the acquisition, investors are free to keep shares of Oneok, which offer a hot 5.9% yield themselves. Or, they can cash out completely and look for the next investing opportunity.

Notably, merger and acquisition trades are not without risk. The deal is still pending both shareholder and regulatory approval. While both appear likely, they are not certain.

In the event the deal falls through, shares of Magellan will likely tumble by at least 10% to pre-deal levels. In case that in conjunction with a deal failing economic conditions deteriorate, investors could face further losses.

A meeting will be held on Sept. 21 where shareholders of record on July 24 will be entitled to vote on the deal. Shareholders who purchase shares after the July 24 date will still benefit if the merger goes through, but will be unable to exercise voting rights.

Since the merger announcement, Magellan stock has been consolidating and is near new highs.

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