HESM Stock: Ultra-High-Yielder Crushing S&P 500
July 15, 2025
Distribution Hiked for 8 Straight Quarters
Today, my income pick in focus is HESM stock.
Crude oil has been in the spotlight since early June, when Israel first attacked Iran and the latter returned fire. The U.S. entered the conflict when it attacked three nuclear sites in Iran. In just a couple of weeks, crude oil prices surged from around $63.00 per barrel to $75.00 per barrel.
On June 24, it was announced that President Donald Trump had brokered a peace deal between Israel and Iran. But neither country seems to be complying. At least not yet. And even if there’s be a ceasefire, the years-long simmering tension between these two countries means that tensions will remain high in the region for the near future.
Uncertainty in the Middle East continues to highlight the importance of using domestic oil and gas or imports from other countries with more stable governments. And one solid U.S. energy play worth putting on your radar is Hess Midstream LP (NYSE:HESM).
The partnership owns oil, gas, and produced water handling assets that are primarily located in the prolific Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota. (Source: “Investor Relations Presentation,” Hess Midstream LP, May 9, 2025.)
Hess Midstream owns, operates, develops, and acquires oil and gas and water midstream assets in the prolific North Dakota Bakken shale region. The partnership provides its strategic infrastructure assets services primarily to its parent, Hess Corp (NYSE:HES), and a number of global third parties.
While the energy market will continue to face instability, Hess Midstream is well positioned to take advantage of market strengths, weaknesses, and inherent volatility. That’s because it has stable long-term commercial contracts through 2033.
Unlike other midstream companies, the partnership is on the receiving end of a 100% fixed-fee, revenue-based contract to gather, process, move, store, and export crude oil and natural gas. This, of course, minimizes commodity price exposure.
As a result, Hess Midstream’s bottom line isn’t susceptible to fluctuations in oil and gas prices. Instead, it is like a tollkeeper that collects money whether its clients use its pipelines or not.
On top of that, minimum volume commitments (MVCs) provide the partnership with downside protection. Hess Midstream’s contracts, which are set on a rolling three-year forward basis (send or pay), cannot be adjusted downward once set, and any shortfall payments are made quarterly. Better still, the partnership’s fees escalate each year based on the Consumer Price Index (CPI).
This provides Hess Midstream with reliable cash flow and opportunities to expand its business. This strategy also provides HESM stockholders with both a reliable dividend and long-term share price gains.
Continues to Deliver Strong Results
For the first quarter ended March 31, 2025, Hess Midstream reported net income of $161.4 million, down slightly from $161.9 million in the same prior-year period. (Source: “HESS MIDSTREAM LP REPORTS ESTIMATED RESULTS FOR THE FIRST QUARTER OF 2025,” Hess Midstream LP, April 30, 2025.)
After deduction for noncontrolling interests, net income attributable to Hess Midstream was $71.6 million, or $0.65 basic earnings per share, compared with $0.60 share in the first quarter of 2024.
Hess Midstream generated adjusted earnings before interest, taxes, depreciation, and amortization of $292.3 million. Net cash provided by operating activities was $202.4 million. Its adjusted free cash flow (FCF) was $190.7 million.
On an operational front, throughput volumes increased eight percent for gas processing, seven percent for oil terminaling, and nine percent for water gathering, primarily due to higher production.
Commenting on the first-quarter results, John Gatling, Hess Midstream’s president and chief operating officer, said, “We continued to deliver strong operational and financial performance in the first quarter despite challenging weather.
“We remain focused on execution, delivery, and growth, which continues to drive the opportunity to return capital to our shareholders on a consistent and ongoing basis.”
Quarterly Distribution Increased to $0.7098
Hess Midstream is a cash cow that has a history of reporting strong FCF, which it uses to pay dividends and debt. Since 2020, its FCF has grown from $340.6 million to $634.2 million in 2024. (Source: “Hess Midstream LP CI A,” MarketWatch, last accessed June 24, 2025.)
The company has raised its dividend for the last eight consecutive years, and 32 times since its 2017 IPO. Most recently, in May, Hess paid a quarterly distribution of $0.798 per share, or $2.76 per share on an annual basis, for a forward annual dividend yield of 7.3%. (Source: “Distributions,” Hess Midstream LP, last accessed June 24, 2025.)
Commenting on the increase, Jonathan Stein, the company’s chief financial officer, said, “With today’s announcement, we continue to execute on our differentiated financial strategy, prioritizing consistent and ongoing return of capital to our shareholders” (Source: “Hess Midstream LP Announces Distribution Per Share Level Increase,” Hess Midstream LP, last accessed April 28, 2025.)
“We expect to continue to have more than $1.25 billion of financial flexibility through 2027 that can be used to support our return of capital framework, including potential unit repurchases that could support further distribution per share level increases.”
25%+ Upside Potential with HESM Stock?
HESM stock has been on a good run over the last five years, advancing 204%. That’s total return and includes reinvested dividends. Had an investor opted to take the quarterly dividends and run, this return would slip to 105%. Back in March, HESM stock hit a record high of $43.12 per share. It was trading near that level until early April, when President Trump unveiled his global tariffs.
Hess Midstream might have stable revenue and strong earnings, but that didn’t prevent investors from sending its stock lower. This was true for many global stocks. Since early April, HESM stock has been clawing its way back, and is, as of June 24, trading hands at $38.19. This puts the stock up:
- 6.5% over the last six months
- 7.0% year to date
- 12.2% on an annual basis
Solid gains, but Wall Street expects HESM stock to hit fresh highs over the coming quarters, with analysts providing a 12-month share price target range of $44.00 to $48.00 per share. This points to potential upside of 15% to 25.5%. Hitting either target would also put the stock in record territory.
Chart courtesy of StockCharts.com
The Lowdown on HESM Stock
Hess Midstream LP is a great energy partnership with a strong balance sheet that’s reporting strong financial results, including FCF. Thanks to long-term contracts, the company’s able to provide strong guidance. From 2024 through 2027, its adjusted EBITDA and FCF are both projected to climb 15%. This should support HESM stock’s quarterly distribution growth, too.
Hess Midstream’s long-term performance and outlook help explain why 344 institutions hold 94.04% of all outstanding shares. Some of the biggest holders of HESM stock include Alps Advisors Inc, Goldman Sachs Group Inc, and Blackstone Inc. (Source: “Hess Midstream LP (HESM),” Yahoo! Finance, last accessed June 24, 2025.)
