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Hess Midstream (NYSE:HESM) Is Increasing Its Dividend To $0.5696

The board of Hess Midstream LP (NYSE:HESM) has announced that it will be paying its dividend of $0.5696 on the 13th of February, an increased payment from last year's comparable dividend. This will take the annual payment to 7.3% 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

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 110% of what it was earning and 85% 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.

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Over the next year, EPS is forecast to expand by 33.4%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 107%, which probably can't continue without putting some pressure on the balance sheet.

historic-dividend
historic-dividend

Hess Midstream Is Still Building Its Track Record

Hess Midstream's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of $1.20 in 2018 to the most recent total annual payment of $2.28. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. Hess Midstream has impressed us by growing EPS at 20% per year over the past five years. EPS has been growing well, but Hess Midstream has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Hess Midstream's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Hess Midstream's payments are rock solid. Strong earnings growth means Hess Midstream has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Hess Midstream that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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