Hess Midstream: High Tech Growth Rate And A Midstream Dividend
Seeking AlphaLong Ideas | Basic MaterialsHess Midstream: High Tech Growth Rate And A Midstream DividendSep. 4, 2020 2:42 AM ET|| About: Hess Midstream LP (HESM), Includes: HESby: Long PlayerLong Player Oil & Gas Value ResearchGet analysis on under followed Oil & Gas companies with an edge.SummaryThe distribution for the second time this fiscal year.
Distribution coverage is expected to be 1.2.
EBITDA should grow 25% next year to continue the rapid growth rate.
Partnership leverage should remain around 3.
The DAPL pipeline dispute will not affect the midstream earnings capability.
Hess Midstream (HESM) management confirmed during the conference call that they expect to increase EBITDA 25% in the next fiscal year. They just increased the distribution for the second time this fiscal year while maintaining a coverage of 1.2. This rapidly growing company will not be slowing down anytime soon. As such it offers that rare combination of good growth prospects with that very generous midstream distribution.
Management intends to increase the dividend at a 5% annual rate for the time being. This partnership distribution coverage ratio is expected to grow to 1.4 next year which portends still more dividend increases in the future. The financial leverage of long term debt to EBITDA is 3.0 at the most. That leverage is far lower than many major partnerships I cover. This rapidly growing partnership will continue to leave much of the industry breathless with that growth rate.
There is a possibility that at some point Hess (HES) will have to focus on the partnership with Exxon Mobil (XOM) until the partnership becomes cash flow positive. But given the expected profitability of the partnership, that cash flow positive could be as early as 2022 (depending upon the price of oil of course). Once the partnership is cash flow positive, then Hess will be developing the Bakken with a fair amount of cash at its disposal.
DAPL Pipeline Dispute
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