Midstream Dividend Update: More Maintaining Than Cutting

05/01/20 | Michael Laitkep

Given most midstream dividends for 1Q20 have now been announced, today’s piece discusses how payouts are trending amid a challenging macro environment for energy. While there have been a number of dividend cuts to date, the majority of constituents by weighting in both the Alerian MLP Infrastructure Index (AMZI) and the Alerian Midstream Energy Select Index (AMEI) are maintaining their dividends sequentially with a few names even growing (see charts below). Note that two AMEI constituents have yet to report dividends (listed as “Unknown” in the charts). For the AMZI, the weighting of MLP constituents growing or maintaining their distributions is 68.5%, while the weighting is slightly lower at 61.9% for the MLPs and C-Corps of the AMEI. The quantity of sequential dividend cuts in both indexes is significant but notably weighted toward smaller names. Twelve out of 21 AMZI constituents have announced distribution cuts accounting for 31.5% of the index by weight, while 14 out of 34 AMEI constituents have announced cuts representing 20.2% of the index. Many of the companies that have cut share similar characteristics, including greater exposure to the wellhead given gathering and processing activities, higher leverage, and lower distribution coverage (read more). With a handful of midstream companies still to declare dividends for 1Q20, it is possible we see additional dividend cuts in the coming days. However, the high percentage of companies maintaining or growing their payouts demonstrates that midstream dividends, especially among the larger names in the space, have proven relatively resilient in a volatile oil market. Incorporating dividend updates through April 30, the yields for the AMZI and AMEI were 11.7% and 8.4%, respectively, at month end.

Since last week’s dividend update, there have been several notable announcements. After previously guiding to a 25% increase, Kinder Morgan (KMI) declared a $0.2625 per share dividend ($1.05 annualized), representing a 5% sequential increase. KMI reiterated its commitment to pay a $1.25 per share annualized dividend and will reevaluate the economic climate when it pays its dividend for 4Q20. Cheniere Energy Partners (CQP) increased its distribution by 1.6% sequentially and maintained its prior full-year distribution guidance of $2.60 per unit at the midpoint, implying year-over-year growth of 5.7%. Delek Logistics Partners (DKL) announced a 0.6% sequential distribution increase and reaffirmed prior guidance to increase its distribution by 5% year-over-year in 2020. Hess Midstream  (HESM) also increased its distribution by 1.2% compared to 4Q19. MPLX (MPLX), Williams (WMB), TC Energy (TRP CN), and Shell Midstream Partners (SHLX) announced that they would hold their dividends steady for 1Q20. Several MLPs, including CNX Midstream (CNXM), Holly Energy Partners (HEP), NGL Energy Partners (NGL), and NuStar Energy (NS), announced distribution cuts over the last week. While 1Q dividend announcements have included a significant number of painful cuts, companies are reducing dividends to improve their balance sheets and increase financial flexibility given ongoing headwinds in energy.