My Top Dividend Stock Just Crashed

Summary

Hess Midstream (NYSE: HESM) fell 14.63% in one day, from $38.69 to $33.03, on trading volume about 10× normal after announcing a major transaction with Chevron. The presenter says the sell-off partly reflected disappointment among investors who had expected Chevron to acquire HESM. Instead, Chevron is exiting as an owner, and HESM is set to become a fully independent public company.

The presenter’s view is that the deal makes HESM smaller in absolute cash-flow terms but improves its long-term position: public investors will own a larger share of the remaining company, its asset base will span two basins, and contracts with Chevron will extend through 2045. In his opinion, the share-price decline may offer a more attractive entry point, though distribution growth will pause in 2027 and leverage will rise.

Transaction and Business Changes

• Chevron is transferring its approximately 38% ownership stake in HESM. The units are expected to be canceled, reducing total units from 206.18 million to 127.9 million. The presenter says this increases public holders’ relative economic interest.
• HESM will pay Chevron $200 million in cash and accept lower fees under revised agreements. The presenter estimates the fee reductions will reduce HESM’s free cash flow by about $475 million in 2027, partly offset by roughly $200 million from newly added assets.
• Chevron is contributing midstream assets in Colorado’s DJ Basin. HESM will also receive a 20% interest in the Saddlehorn crude-oil pipeline and the associated GP interest.
  • Saddlehorn’s other owners are ONEOK (40%) and Plains (40%).
  • The pipeline transports crude from Colorado to Oklahoma.
• Contracts with Chevron are extended through 2045, with fixed fees and CPI escalators. The presenter says about 70% of revenue has downside protection, including an 80% minimum-revenue floor through 2033.
• HESM expects to become fully independent, form a new board, and announce a new company name. The transaction is expected to close at year-end 2026.
• Chevron remains HESM’s largest customer, but third-party volumes are expected to rise to about 20%, from less than 10% previously.

Financial and Distribution Figures Cited

Metric Figure cited 2026 adjusted EBITDA guidance $1.2 billion 2027 adjusted EBITDA guidance $850–$950 million; midpoint of $900 million 2027 adjusted free cash flow guidance $525–$625 million; midpoint of $575 million 2027 CapEx guidance $125 million Adjusted free cash flow after distributions $110–$210 million

The presenter calculates a 27.3% decline in the headline adjusted EBITDA midpoint from 2026 to 2027. He also calculates a 37.7% decline in the headline adjusted free cash flow figure, compared with the previously cited $922 million for public shareholders plus unit holders. Management plans to use some of the $110–$210 million in adjusted free cash flow remaining after distributions to reduce debt.

On a per-unit basis, the presenter estimates:

• Adjusted EBITDA rises from $6.00 to $7.04 (+17.2%).
• Adjusted free cash flow is nearly flat, from $4.47 to $4.50 (+0.5%).

The distribution is expected to increase once more in Q4 2026, from a cited annualized level of $3.17 to $3.23 for 2027. Management plans to hold it flat during 2027. The presenter cites distribution coverage of 1.39×—a payout ratio of about 72%—and a payout ratio of 79% at the low end of guidance.

Debt-to-EBITDA is expected to rise from about 3× to roughly 4×; the presenter also cites approximately 4.1×. Management’s stated target is 3.5–3.7× adjusted EBITDA. HESM has debt refinancing due in July 2027. The presenter considers leverage a key risk, while arguing that the longer-term contracts could help the company access financing.

The presenter cites a five-year distribution CAGR of 9.36%. He says HESM historically raised its distribution quarterly, including during the 2020 oil-and-gas downturn, but that its previous 5%+ annual growth commitment will not apply in 2027.

He cites a current forward distribution yield of 9.55% in one section and 9.79% after factoring in the planned increase. He also says the yield on cost is at its highest level in five years.

Valuation and Investing Framework

Using the company’s 2027 guidance, the presenter offers several estimates of value:

Method Assumption Estimated value per unit EV/EBITDA 9× $34.40 Free-cash-flow yield 12% $37.46 Dividend discount model Base estimate $39.94 DCF through 2045 Base case $46.78

The presenter argues that the post-announcement price of $33.03 provides a larger margin of safety and that the company’s intrinsic value may not have fallen as much as the share price. These are his estimates, not company guidance.

His investment discussion emphasizes:

• Compare the transaction’s impact on per-unit economics, not just total-company cash flow, because the unit count is expected to fall.
• Assess distribution coverage and debt repayment needs before assuming distribution growth will continue.
• Consider reinvesting distributions at lower prices, while recognizing that this depends on the stock remaining depressed and the business delivering its forecasts.
• Evaluate HESM’s longer-term contracts, minimum-revenue protections, CPI escalators, asset diversification, and third-party volumes alongside its higher leverage and slower near-term distribution growth.

Key Risks and Cautions

• Distribution growth is expected to pause in 2027; the pace of growth afterward is uncertain.
• Higher leverage and the July 2027 refinancing are material risks.
• The stock may remain weak in the near term as the shareholder base adjusts to the transaction.
• Chevron remains the largest customer, despite the addition of DJ Basin assets and greater third-party volumes.
• The presenter says he is holding HESM and reinvesting distributions, and is more interested in adding after the decline. He also says investors should research the company themselves and not blindly follow his actions.

Assets and Instruments Mentioned

• Hess Midstream (HESM): Midstream oil-and-gas infrastructure and distribution-paying security.
• Chevron: HESM’s primary customer and former sponsor and owner.
• ONEOK and Plains: Other Saddlehorn pipeline owners.
• MPLX: Another midstream investment held by the presenter, referenced for leverage comparison.
• Bakken and DJ Basin: HESM operating regions. The Permian Basin is mentioned as Chevron’s largest production asset group.
• Saddlehorn crude-oil pipeline: HESM is to receive a 20% stake.

Disclosure and Sources

The presenter explicitly says this is his opinion, not financial advice, and urges viewers to do their own research.

The presenter is Zach of Dividend Data. He says his analysis draws on Hess Midstream press releases, its investor presentation, an investor update call, additional sources, and his own calculations.