Most investors tend to fall into one of two camps: those seeking income and those looking for growth. Some of the best returns, however, come from companies that provide their investors with a growing income stream. Because of that, investors should focus their attention on companies that can deliver growth and income.
Three companies that could provide both in spades over the coming years are Noble Midstream Partners (NBLX), Hess Midstream Partners (HESM), and Oasis Midstream Partners (OMP). All three midstream companies offer high yields currently ranging between 7% and 9.5% that they expect to increase at a more than 15% annual rate going forward. To stay on track with those lofty goals, these master limited partnerships (MLPs) need to accomplish a few things in 2019, which is why investors should keep an eye on them this year.
Look for it to extend its reach in 2019
Check out the latest Noble Midstream Partners earnings call transcript.
Noble Midstream currently yields 7% and expects to increase that payout at a 20% annual rate through 2022. The main factor driving that fast-paced growth is an anticipated increase in oil and gas production from its parent, Noble Energy, as well as third-party producers in the Delaware and DJ Basins where the company operates oil-, natural gas-, and water-gathering systems that support newly drilled wells. As volumes grow, Noble Midstream can expand its assets, enabling it to generate more cash so that it can increase distributions to investors.
Because Noble Midstream's focus is at the wellhead, the company is highly dependent on drilling activities, which can ebb and flow with oil prices. That's why it has been working to diversify further downstream to reduce this dependence. Noble Midstream took a step in that direction recently by signing a letter of intent to form a joint venture with a privately held midstream company to build a new pipeline system in the Delaware Basin that would bolster its growth prospects.
In addition to that, the company holds options to acquire stakes in two long-haul pipelines that are currently under construction and has until next month to decide whether to participate in these projects. Investors should watch if the company moves forward with these opportunities, since they would significantly bolster its growth prospects, providing further support to its dividend growth plan.
See if it secures new opportunities
Hess Midstream's current yield is slightly higher at 7.1%, though the company anticipates slower distribution growth of 15% annually going forward. The main growth driver in the near term will be rising volumes flowing through its systems, driven primarily by its oil-producing parent, Hess. Overall, Hess expects to grow its production in the Bakken shale region of North Dakota at a 20% annual rate through 2021, which supports Hess Midstream's distribution growth plan.
One of Hess Midstream's goals for 2019 is moving forward with an expansion of its Tioga gas plant to support the growth of not only Hess but third-party producers, with hopes of placing it into service in the 2020 to 2021 time frame. Expanding its third-party capabilities is important because Hess plans to turn the Bakken from a growth engine into a cash flow machine after 2021.
While Hess Midstream will still have some internal growth opportunities beyond that point, including acquiring additional midstream assets from its parent, it needs to diversify its customer base in the future so that it can continue growing its payout at a high rate. That's why investors should keep an eye on its diversification progress this year.
Keep an eye on a move to the Permian
Check out the latest Oasis Midstream Partners earnings call transcript.
Oasis Midstream Partners is the highest yielder in this group at 9.5% and ties Noble Midstream with the highest growth rate at an anticipated 20% annual pace through at least 2021. Like Hess Midstream, the main driver is the company's relationship with its oil-producing parent, Oasis Petroleum, which expects to grow its volumes in the Bakken at a fast pace over the next several years. That will enable Oasis Midstream to build additional gathering pipelines and processing plants to support this growth.
While Oasis Midstream has been working to secure third-party customers for its systems -- which it needs to continue doing -- an equally important part of its diversification strategy is to start building midstream assets in the Delaware Basin where its parent set up shop a few years ago. Getting a toehold in that region could provide the company with a second growth engine in the future, which makes it an area that investors should keep an eye on this year.
Diversification would de-risk these plans
This trio of MLPs promise investors not only lucrative income streams today but high-growth rates over the next several years. If they achieve that aim, then they could generate market-beating total returns. However, each company is highly reliant on the anticipated fast-paced growth of their producing parents, which makes their plans a bit risky. That's why investors should keep an eye on their diversification efforts in 2019, as that would de-risk their strategies, making it more likely that they can achieve their lofty goals of delivering high-octane income growth.