Happy Monday,
My top high-yield dividend stock keeps crashing. I had over $100,000 in Hess Midstream ($HESM) at one point, and that's now $79,000. My loss of value since the new Chevron deal came out is $20,888.
And I just bought more. Not a huge amount, but it's the beginning of me dollar cost averaging into Hess Midstream again. Here's my plan, the deal a week later, and my intrinsic value math.
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The Key Story
The Price Keeps Falling. HESM Stock Analysis
📊 Research HESM: DividendData.com/stocks/hesm/dividend
Hess Midstream announced a huge deal with its sponsor, Chevron ($CVX), and the market absolutely hated it. The stock fell 14.63% in a single day, then another 7.2% since my first video, with no actual new news. You're getting a churning among the shareholder base.
You should not let the market tell you how to think about something. I'm looking at this sell-off as an opportunity.
The yield: HESM's dividend yield is now at its highest of the past 5 years, at 10.29%.
The payment: Definitely not at risk of being cut. One more increase this year, then a hold in 2027.
The track record: It raised its payment every single quarter. The 5-year dividend CAGR is 9.36%, well above their base 5% target.
More units per dollar: At this lower price, my reinvested distributions get me 26% more units than at $38.69, the price before this fall.
The Deal
A Smaller Company, a Bigger Slice Per Unit
Chevron's 38% stake, 78.28 million units, gets canceled. Hess Midstream pays $200 million in cash plus lower Bakken fees for 2027 through 2033. It gets DJ Basin assets in Colorado, 20% of the Saddlehorn pipeline, and Chevron contracts extended from 2033 to 2045.
But here's the thing the headline numbers don't really show.
Company level: Adjusted EBITDA goes from $1.2 billion to a $900 million 2027 midpoint, down 27%. Adjusted free cash flow goes from $922 million to $575 million, down 37%, from the fee cuts.
Fewer units: 206 million units before the deal, 127.9 million after closing. Each unit owns more of the business.
Per unit: Adjusted EBITDA per unit goes from $6.00 to $7.04, up 17.2%. Adjusted free cash flow per unit is basically flat, $4.47 to $4.50.
Debt per unit: Up 61%, from $17.96 to $28.93. The debt is the big problem here.
The Risk
Why I'm Not Worried About the Debt
Hess Midstream had one of the lowest debt to EBITDA ratios among midstream stocks. Now it's 4.12x, not because of a ton of new debt, but because EBITDA went down from the new lower fee contracts.
The targets: Leverage of 3.75x to 4x by the end of 2027, and a long-term target of 3.5x to 3.75x.
The trade-off: No distribution increase in 2027, so excess free cash flow pays down debt first.
The peers: This brings it back in line with names like MPLX ($MPLX). The peer median is 3.67x, and it's below ONEOK ($OKE), TC Energy ($TRP) and Enbridge ($ENB).
They have locked-down contracts with fee escalators and minimum revenue contracts that protect the dividend. Chevron is now around 70% of the business, down from something like 85%. With no distributions going to Chevron, the coverage is basically exactly the same.
I think the dividend is just as safe as before, if not more safe.
Valuation
What I Think HESM Is Worth
I put this together myself, because HESM hasn't reported a quarter since the deal. Every central estimate is above the $30.65 price when I filmed.
EV to EBITDA: At 9x 2027 EBITDA, $34.40 a unit. At 10x, $41.44. The industry median is 10.4x. HESM traded at 9.4x right before the deal and around 8.47x now.
Free cash flow yield: At $30.65, that's a 14.7% free cash flow yield. At 12%, about where it traded pre-deal, $37.46. At 14%, $32.11.
Dividend discount model: My bear case, a 2027 hold, 0% growth through 2030 and a 20% cut at some point, still gives $31.99 at a 9% annual return. Weighted, $39.94. Bull, $48.76.
Our DDM tool: Our dividend discount model tool at 2% dividend growth and a 10% required return gives $34.19. Very conservative.
Contract DCF: A weighted $46.78.
An equal weight of all methods at a 10% discount rate gives $39.87, with a $30.60 bear case and a $50.65 bull case. That implies around 30% upside.
There is a large margin of safety right now. But that doesn't mean you should rush in. It could stay in a lower price range for quite a bit.
My Plan
Buying a Little, Building Cash
I've grown my dividend growth portfolio from $30,000 to $350,000 since 2020. Hess Midstream was my largest high-yield position, and it stays a core position. The stake is just under $80,000 and pays me about $8,200 a year.
What I bought: 65 more shares at market close on Wednesday, just under $2,000. I believe it was at $30.58.
Where I stand: My cost per share was $33.89, down 9.5% on price. With dividends reinvested, I'm basically flat, at a 0.72% total return.
Why not more: I already have a large stake, and I bought a lot in early 2026 building my Microsoft ($MSFT) position. I'm rebuilding cash.
I've seen this before: I built this position in October and November 2025 at a 9% to 9.4% yield on cost, after Chevron's rig cut news. That sell-off was a good buying opportunity, and I think we're entering one of those periods again.
My Plan: I'm a net buyer, but not in a rush. There aren't a lot of catalysts to bring the price up over the next few months. Frankly, I'm hoping it stays low through my next distribution so I can reinvest at this price. If I like the price, I'll dollar cost average in month by month.
I think 10 years from now, when we look back at today, this is going to look like a big opportunity.
Dividend News
New Dividend Increases This Week
Get all Dividend Raises, Cuts, and Declarations on Dividend News, linked at the bottom of this email.
IBKR - Interactive Brokers raises quarterly dividend by 71.4% to $0.15/share
SCCO - Southern Copper raises quarterly dividend by 18.2% to $1.30/share
PSX - Phillips 66 raises quarterly dividend by 4.7% to $1.33/share
CFG - Citizens Financial raises quarterly dividend by 13.0% to $0.52/share
LECO - Lincoln Electric raises quarterly dividend by 10.1% to $0.87/share
AOS - A. O. Smith raises quarterly dividend by 5.6% to $0.38/share
RPM - RPM International raises quarterly dividend by 5.6% to $0.57/share
ADC - Agree Realty raises monthly dividend by 1.5% to $0.271/share
SIMO - Silicon Motion raises quarterly dividend by 15.0% to $0.575/share
THO - Thor Industries raises quarterly dividend by 3.8% to $0.54/share
MSM - MSC Industrial raises quarterly dividend by 2.3% to $0.89/share
PAG - Penske Automotive raises quarterly dividend by 1.4% to $1.46/share
Earnings News
Huge Earnings This Week ($TSLA, $META, $NFLX, $SPCX, $GE, $PM, $T, $IBM, $LMT)
The big names to watch:
Tuesday (10/20):
Wednesday (10/21):
Thursday (10/22):
LMT - Lockheed Martin Corporation
See every company reporting this week: Earnings Calendar
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Zach
Founder, Dividend Data
P.S. Questions or suggestions? Reply to this email. I'd love your feedback!
P.P.S. What's your one question about Hess Midstream right now? Hit reply and I'll answer the best ones in a video.
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