Hess Midstream (NYSE:HESM) Will Pay A Larger Dividend Than Last Year At $0.6343

Hess Midstream LP (NYSE:HESM) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of February to $0.6343. 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's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 94% of cash flows, but a higher proportion of net income. 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.

Earnings per share is forecast to rise by 80.6% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 93% which is a bit high but can definitely be sustainable.

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 annual payment during the last 7 years was $1.20 in 2017, and the most recent fiscal year payment was $2.54. This implies that the company grew its distributions at a yearly rate of about 11% 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.

Hess Midstream May Have Challenges Growing The Dividend

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Hess Midstream has grown earnings per share at 6.5% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Hess Midstream will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Hess Midstream has 2 warning signs (and 1 which makes us a bit uncomfortable) we think 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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