Regardless of oil price fluctuations and supply and demand narratives, the world runs on oil and gas. And when we mention some top oil and gas companies, we think of Chevron, ExxonMobil, and the likes. Few would think of Hess Midstream (NYSE: HESM), and they could rightly be forgiven for that. The company does extract oil like the aforementioned companies. This explains why this high dividend yield stock has remained under the radar.
Stock Positives
Source: Kindel Media
The first positive about Hess Midstream is its business. Hess does not own oilfields or do oil drilling. Rather, it owns crude oil storage, processing, and transport facilities. Regardless of whether the drilling company makes profits or losses with its crude oil, Hess gets paid as the intermediary between the market and the oil drilling companies.
Another positive on this stock is its dividend yield of 7%. The company announced in its Q3 FY 2021 report that its quarterly dividend payout would increase to $0.5167, keeping up with the consistent dividend payout increase history the company has built. This is a reason to smile for income investors.
If you need more positives, the company’s Q4 2021 report can provide that. Hess Midstream recorded a net income of $165.1 million (25% YoY growth), total revenue of $316.3 million (17% YoY growth), and Adjusted EBITDA of $246.6 million (24% YoY growth). These are all signs that the company is growing.
Those are things going well for the company. But before you jump at the stock, here’re some warning signs to be wary of.
Warning Signs
A 7% dividend yield is great! But when you take a closer look, you find out that the company has a payout ratio of over 100%. This means the company is giving out more than what it’s earning to shareholders as dividend. What then is left to run business with?
Combine this with the fact that the company has only been paying dividends for 5 years, the question of dividend sustainability comes under the magnifying glass.
Technical Analysis
HESM has been on an uptrend since March 2020, and there’s nothing to suggest that an end to the trend is near.
In fact, there’s technical evidence that suggests that the stock is still very much in the territory of the bulls. You’ll notice that the price just broke out of and retested the $27.3 – $28.3 resistance level in recent weeks, and now rests on it as a support.
There looks to be a minor resistance in the $30 area. If the price could beat this level, we may see more upward momentum that will take the stock to $35 or above.
This potential upside makes HESM a good stock to consider for growth, and its high dividend yield presents a good case for dividend. You can buy HESM now if you don’t mind the caveat that it might not be able to sustain this dividend yield long term without reviewing its dividend payout.
