| Hess Midstream (NYSE: HESM) operates oil and gas pipelines and terminals. What's particularly impressive about the company is not only its 8.7% distribution yield, but that it has raised its payout for 33 straight quarters, a span of more than eight years. (Partnerships' dividends are called distributions, and their shares are called units.) Can that streak continue? Though it's a partnership, Hess Midstream reports its results in terms of free cash flow. In 2024, free cash flow dipped from $642.9 million to $634.2 million. The Safety Net model hates declining cash flow, even in tiny increments. A lower cash flow number results in a penalty. Fortunately for investors, that is the only penalty when it comes to cash flow. In 2025, free cash flow is forecast to have risen to nearly $765 million, and it's expected to climb to $799 million in 2026. The payout ratio is low. In 2024, the company paid out just 37% of its free cash flow in distributions. In 2025, I estimate distributions paid to be around $330 million, which would be 43% of free cash flow. For partnerships, the Safety Net model will accept payout ratios of up to 100%. Hess Midstream's payout ratio of 43% is well below that threshold. Assuming 10% distribution growth in 2026, the payout ratio would still be below 50%. | 
Post a Comment
Post a Comment