Hess Midstream's (NYSE:HESM) Dividend Will Be Increased To $0.5851

The board of Hess Midstream LP (NYSE:HESM) has announced that it will be paying its dividend of $0.5851 on the 12th of May, an increased payment from last year's comparable dividend. This takes the dividend yield to 8.1%, which shareholders will be pleased with.

See our latest analysis for Hess Midstream

Hess Midstream's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 110% of what it was earning and 90% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

EPS is set to grow by 46.4% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 95% 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 6 years was $1.20 in 2017, and the most recent fiscal year payment was $2.34. This implies that the company grew its distributions at a yearly rate of about 12% 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

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Hess Midstream has seen EPS rising for the last five years, at 14% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

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. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Hess Midstream (2 are concerning!) that you should be aware of before investing. Is Hess Midstream not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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