Hess Midstream's (NYSE:HESM) Shareholders Will Receive A Bigger Dividend Than Last Year

Hess Midstream LP's (NYSE:HESM) dividend will be increasing from last year's payment of the same period to $0.6846 on 14th of November. This will take the annual payment to 7.7% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Hess Midstream

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

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, 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. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

Over the next year, EPS is forecast to expand by 44.0%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 102% over the next year.

Hess Midstream Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the dividend has gone from $1.20 total annually to $2.67. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Hess Midstream has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

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 11% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Hess Midstream's Dividend

Overall, we always like to see the dividend being raised, but we don't think Hess Midstream will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Hess Midstream has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Hess Midstream that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.