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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hess Midstream LP (NYSE:HESM) is about to trade ex-dividend in the next three days. Investors can purchase shares before the 3rd of February in order to be eligible for this dividend, which will be paid on the 12th of February.
Hess Midstream's next dividend payment will be US$0.45 per share, on the back of last year when the company paid a total of US$1.79 to shareholders. Based on the last year's worth of payments, Hess Midstream has a trailing yield of 8.6% on the current stock price of $20.87. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Hess Midstream can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hess Midstream distributed an unsustainably high 132% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Hess Midstream has grown its earnings rapidly, up 21% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hess Midstream has delivered 10% dividend growth per year on average over the past four years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Is Hess Midstream worth buying for its dividend? It's been growing earnings per share at a pleasant rate, although its dividend payout was not well covered by earnings. In summary, Hess Midstream appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 4 warning signs for Hess Midstream (2 are a bit unpleasant!) that you ought to be aware of before buying the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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