Oil and gas pipeline operators populate many top dividend stock lists due to fee-based contracts and steady cashflows that support high yields. Western Midstream (WES) is a top performer in this group, sporting a sizzling 7.9% yield that’s set to go even higher next quarter.
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Western Midstream stores, processes and transports natural gas and crude oil, with operations in Northeast Colorado and Southeast Wyoming’s DJ basin and West Texas’ Delaware basins.
The company, spun off from Occidental Petroleum (OXY) in 2019, has paid eye-watering distributions thanks to higher energy prices. It currently boasts a quarterly distribution of 50 cents, which equates to a 7.9% annualized yield.
Dividend Stock Investors Could Get Big Bonus
The dividend stock payout is remarkable, but investors may get an even higher distribution next quarter.
In the past year, Western Midstream has lowered its net leverage ratio from 4.6 to 3.1, below a 3.4 threshold set by the company to add a supplemental 36 cent-per-share dividend.
While still unconfirmed, this enhanced payout is likely to accompany the regular 50-cent distribution in April. Taken together, it equates to an eye-watering 13.5% yield on an annualized basis.
Enhanced distributions are unlikely to continue in the long term, with 93% of Western’s contracts fee-based. But the company remains in a strong position to continue solid dividend growth.
As it reduced debt, it has received an upgrade to investment-grade BBB- from S&P Global. However, this debt rating still highlights risk, principally to volatile energy prices. Western Midstream estimates that a $10 decline in crude oil prices will cause an estimated $30 million EBITDA loss.
Shares of this dividend stock have been trading sideways over the past few months and are currently at the lower end of this range, below the 50- and 200-day lines.
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