EPD - Let's Talk About The Dividend Kings' Midstream Cousins
2023-05-04 09:23:34 ET
Summary
- Dividend kings and even aristocrats get plenty of love.
- If readers will allow me to stretch the dividend royalty metaphor a bit further, I would like to propose a third group beyond the kings and aristocrats.
- The third group will be a select group of the kings' midstream cousins currently yielding at least 5% with a history of growing dividends for at least five years.
Dividend Kings, Aristocrats, and Midstream Cousins
Dividend kings are rightly celebrated and loved as they have paid increasing dividends for at least 50 consecutive years. Likewise, dividend aristocrats merit praise having rewarded shareholders with increasing dividends for at least 25 consecutive years. Dividend kings and aristocrats include household names like Colgate-Palmolive Company ( CL ), Chevron Corporation ( CVX ), and The Coca-Cola Company ( KO ).
At the same time, the dividend Kings' midstream cousins seem to have fallen out of favor even though many pay consistent dividends on stable earnings while providing essential services. Furthermore, the less celebrated midstream cousins have an average forward yield of 7.5% while the average dividend aristocrat has a forward yield of just 2%.
Let's Meet The Dividend Kings' Midstream Cousins
Seeking Alpha's screening tool was used to select midstream cousins according to the following criteria:.
- At least 5% forward yield
- At least 5 years of dividend increases
The eight companies that met these criteria were compared using a dividend royalty matrix with the following factors:
- Forward Yield - A higher dividend was considered more favorable
- Years of Dividend Growth - A longer history was considered more favorable
- Consecutive Years Without Reduction - Again, a longer history was considered more favorable
- 5 Yr Total Return - A higher 5Yr total return was considered more favorable and assigned a 2x weight
The values for each company's factors were normalized by means of statistical percent ranking with relation to the group. The risk matrix was calculated as the sum of the percent ranks of the factors.
Dividend Royalty Chart
Author, SA Data
The above chart is sorted in descending order from most royal cousin (highest dividend royalty matrix score) to least royal cousin (lowest dividend royalty matrix score). Note the maximum 5 year total return rank is 2, twice that of the other factors.
Dividend Royalty Plot
Author, SA Data
The dividend royalty matrix is presented graphically in the stacked bar chart above with cumulative inputs for each factor. Based on this analysis, the midstream cousins with the most favorable combination of dividend royalty factors are:
Dividend Royalty Matrix Limitations
Investors should consider the dividend royalty matrix a screen only. The matrix and its factors, normalization method, and weights could all be adjusted and yield different results. Further, the matrix is based on the most readily available and common metrics. These metrics can change rapidly with share price or as new company reports are released. The risk matrix does not include company-specific data available in quarterly reports and presentations.
Are These Midstreams a Good Buy Right Now?
A comprehensive valuation of the midstream royalty cousins is beyond the scope of this discussion, but lets take a quick look at current prices vs 52Wk highs and current PE ratios vs 5Yr average ratios.
Current Price vs 52Wk High
Author, SA Data
Most of the stocks considered are well below their 52Wk highs but price alone does not always equate to value.
Current PE vs 5Yr Average PE
Author, SA Data
Most of the stocks' PE ratios are near or above their own 5YR averages. However, based on their current PE ratios vs 5Yr average ratios, Cheniere Energy Partners, L.P. ( CQP ) and Kinder Morgan, Inc. ( KMI ) appear to be most favorably valued.
Conclusions and Recommendations
The dividend royalty matrix is a blunt instrument; finesse, judgement and discernment are left to investors. Investors are advised to consider the dividend royalty matrix as nothing more than a starting point for their own due diligence. Nonetheless, a higher dividend royalty score suggests a dividend midstream cousin is a more favorable dividend position.
The eight midstream companies considered have demonstrated long term commitment to shareholders by paying consistent and growing dividends for at least 5 years. I would recommend that investors who are interested in any one of the companies discussed complete their own analysis of that company. Further investors might watch the market carefully and wait for a better price given recent energy sector weakness and broader economic concerns.
Information is a source of learning. But unless it is organized, processed, and available to the right people in a format for decision making, it is a burden, not a benefit. - William Pollard (Physicist and Theologian).
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Let's Talk About The Dividend Kings' Midstream Cousins