Hess Midstream's (NYSE:HESM) Dividend Will Be Increased To $0.737

Hess Midstream LP's (NYSE:HESM) dividend will be increasing from last year's payment of the same period to $0.737 on 14th of August. This will take the dividend yield to an attractive 6.5%, providing a nice boost to shareholder returns.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Estimates Indicate Hess Midstream's Could Struggle to Maintain Dividend Payments In The Future

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Hess Midstream was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 90% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 29.6%. If the dividend continues on its recent course, the payout ratio in 12 months could be 114%, which is a bit high and could start applying pressure to the balance sheet.

Check out our latest analysis for Hess Midstream

Hess Midstream Is Still Building Its Track Record

It is great to see that Hess Midstream has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2017, the annual payment back then was $1.20, compared to the most recent full-year payment of $2.84. This means that it has been growing its distributions at 11% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though Hess Midstream's EPS has declined at around 2.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Hess Midstream's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hess Midstream's payments are rock solid. While Hess Midstream is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Hess Midstream is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Hess Midstream that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.