What happened
Shares of SemGroup Corp (SEMG) slipped on Monday and were down about 10% at 2:45 p.m. EST. Driving the sell-off was the midstream service company's fourth-quarter report and its outlook for 2018 and beyond.
So what
SemGroup reported $111.5 million in adjusted EBITDA for the fourth quarter, which pushed its full-year total to $328.3 million. That was 16% ahead of 2016's results and toward the high end of the company's $315 million to $330 million guidance range. Driving the improvement was a full quarter of earnings from the company's new Gulf Coast assets as well as solid results from its Canadian business. That said, while profits did come in toward the high end of its guidance range, it's worth noting that the company cut that range from $330 million to $350 million in the third quarter due to weaker margins in its crude supply and logistics and crude field service businesses, which remain under pressure.
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SemGroup also noted that it has been very successful in raising capital over the past few months to make the final payment for a recent acquisition as well as to pre-fund growth opportunities. Overall, the company secured nearly $790 million in funding by selling its interest in the Glass Mountain Pipeline for $300 million, closing a $350 million preferred stock sale, and securing buyers for its SemMaterials business in Mexico and SemLogistics operations in the U.K. for $140 million. That money will enable SemGroup to fund $350 million in capital projects this year, including $310 million of expansions. The growth from those capital projects, when combined with a recent acquisition, should drive adjusted EBITDA up to a range of $385 million to $415 million this year, or about 22% higher than 2017 at the midpoint.
That growth enabled SemGroup to increase its dividend 5.6% this year and has it on pace to boost the payout by at least a 5% annual rate through 2019. However, this forecast is well below the company's prior guidance for a 10% increase in 2018 and a 10% compound annual dividend growth rate through 2020.
Now what
SemGroup has substantially transformed its portfolio over the past year by selling non-strategic assets and replacing them with stable cash flowing ones like those in the Gulf Coast. However, challenges remain in some of its crude-related businesses, which is why the company's dividend isn't growing nearly as fast as expected. That slower paced dividend growth is driving down the stock on Monday and is why income-growth investors might want to look elsewhere.
