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2024/05/08

Will Distributions Continue to Flow for This 9.9% Yielder?

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Will Distributions Continue to Flow for This 9.9% Yielder?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

Western Midstream Partners (NYSE: WES) gathers and processes oil and natural gas liquids and transports them via pipeline - primarily in west Texas, New Mexico and Colorado.

The company just announced a giant 52% increase in its distribution (partnerships pay distributions, not dividends). The quarterly distribution is now $0.875, which means the stock yields 9.9%.

Let's see whether that big boost is sustainable.

Last year was not a great one for Western Midstream Partners. Free cash flow slid 24% to $926 million. It's forecast to rebound to $1.16 billion this year, but that'd still be the second-lowest figure in the past five years.

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In 2023, the company actually paid shareholders more than it took in. Shareholders received $978 million in distributions, while the company generated only $926 million in free cash flow. That comes out to a 106% payout ratio.

In other words, Western Midstream paid out $1.06 for every $1 it made in free cash flow.

This year, though, the payout ratio is forecast to drop to 89%, as the company is projected to pay $1.04 billion in distributions against $1.16 billion in free cash flow.

Is that enough of a difference for the company to be able to sustain its payout?

Click the button below to let me know your thoughts, and then scroll up to finish reading.

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