Attractive Midstream Investment Opportunities
The midstream sector of the energy industry, particularly pipeline operators, offers appealing options for investors looking for high dividend yields. These generous payouts are incentives for investing in a stable, low-growth sector characterized by reliable cash flows.
Dividends vs. Market Risks
While dividends and predictability can be enticing, they do not eliminate risk. For instance, look at Kinetik Holdings (NYSE: KNTK), a mid-sized pipeline company focused on the lucrative Permian Basin, which saw its value decrease by roughly 36% over the year leading up to February 5.
Stock Performance and Trends
Recently, Kinetik’s stock has begun to rebound, gaining 14% in the past month. Although it remains to be seen if this upward trend is sustainable, Kinetik appears to be a promising option for risk-tolerant investors considering a buy-and-hold strategy.
Dividend Yield and Growth
As of February 5, Kinetik offers an impressive dividend yield of 7.85%. While this figure is eye-catching, what truly matters is the trajectory of payout growth. The Texas-based midstream firm recently announced a 4% increase in its quarterly dividend to $0.81 per share.
Dividend Consistency
Kinetik has been paying dividends since 2021, with some increases along the way, signifying that management values shareholder returns. Although there are many long-term payout streaks in the commodities sector, Kinetik is showing promising trends in maintaining consistent dividends.
Future Growth Prospects
This pipeline operator may be capable of enduring long-term dividend increases, especially if it can meet or exceed earnings expectations this year and in 2027 as new projects come into play. The ECCC pipeline, for example, may yield benefits by the second quarter, which could serve as a catalyst for growth.
Valuation Concerns
Given Kinetik’s struggles over the last year, investors might wonder if it’s a value trap. A 36% decline can indeed raise red flags, but Kinetik does not appear to be a dubious investment; rather, it offers potential as it trades at a discount compared to its peers. The attractive dividend may be one reason why some market professionals are showing interest.
