Income Investors Should Know Hess Midstream LP (NYSE:HESM) Goes Ex-Dividend Soon

Hess Midstream LP (NYSE:HESM) The stock is set to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you will not be on the company’s books as of the record date. In other words, investors can buy Hess Midstream shares before August 3 in order to be eligible for the dividend, which will be paid on August 12.

The company’s next dividend payment will be $0.56 per share. Last year, in total, the company distributed US$2.22 to shareholders. Based on last year’s payouts, Hess Midstream has a 7.3% yield on the current share price of $30.42. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.

Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Hess Midstream paid out 110% of its profits, which is more than we’re happy with, barring extenuating circumstances. A useful secondary check may be to assess whether Hess Midstream has generated sufficient free cash flow to pay its dividend. Fortunately, it only paid out 7.8% of its free cash flow last year.

It’s good to see that even though Hess Midstream’s dividends weren’t covered by earnings, they are at least affordable from a cash-flow perspective. Still, if the company repeatedly pays out a dividend that exceeds its earnings, we’d be concerned. Very few companies are able to sustainably pay dividends above their reported earnings.

Click on here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: Historic HESM dividend July 30, 2022

Have earnings and dividends increased?

Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall enough, the company could be forced to cut its dividend. That’s why it’s a relief to see that Hess Midstream’s earnings per share have grown 5.7% annually over the past five years.

Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Since our data began five years ago, Hess Midstream has increased its dividend by around 13% per year on average. It’s encouraging to see the company increasing its dividends as earnings rise, suggesting at least some corporate interest in rewarding shareholders.

The essential

Should investors buy Hess Midstream for the next dividend? Earnings per share rose slightly and last year Hess Midstream paid out a small percentage of its cash flow. However, its dividend payments were not well covered by earnings. All in all, not a bad combination, but we believe there are probably more attractive dividend prospects.

While you’re not overly concerned about Hess Midstream’s ability to pay dividends, you should still keep in mind some of the other risks this company faces. Every business has risks, and we’ve spotted 2 warning signs for Hess Midstream (1 of which is a little unpleasant!) that you should know about.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Robert D. Coleman