Hess Midstream (NYSE:HESM) Is Increasing Its Dividend To $0.5559
Hess Midstream LP (NYSE:HESM) will increase its dividend from last year's comparable payment on the 12th of August to $0.5559. This will take the annual payment to 7.4% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Hess Midstream
Hess Midstream Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 110% of what it was earning and 92% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
Over the next year, EPS is forecast to expand by 23.3%. If the dividend continues on its recent course, the payout ratio in 12 months could be 141%, which is a bit high and could start applying pressure to the balance sheet.
Hess Midstream Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. Since 2017, the annual payment back then was $1.20, compared to the most recent full-year payment of $2.2. This means that it has been growing its distributions at 13% per annum over that time. Hess Midstream has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
Dividend Growth May Be Hard To Come By
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Over the past five years, it looks as though Hess Midstream's EPS has declined at around 8.8% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
Hess Midstream's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Hess Midstream (of which 1 is a bit concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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