It's easy for a stock to double its dividend from a low starting point. Those with already-attractive payouts, on the other hand, need to work much harder. They must grow their cash flow at a fast pace, which is challenging when they're sending so much of it back to investors.
Some companies, however, can fund both needle-moving growth and an above-average payout, which gives them the fuel to grow their dividends at high rates. Three of these income-and-growth machines are CNX Midstream Partners (NYSE:CNXM), Hess Midstream Partners (NYSE:HESM), and Noble Midstream Partners (NASDAQ:NBLX). Each one of these energy companies is on pace to double their payouts over the next five years. That should give them the fuel to produce market-smashing total returns over that time frame.
A clear line of sight to doubling its payout in five years
CNX Midstream is a master limited partnership (MLP) focused on operating and developing midstream assets to support the growth of producers in the Marcellus Shale. The company currently owns stakes in two midstream development companies that generate predictable income backed by fee-based contracts with its natural-gas-producing parent CNX Resources. Those lucrative agreements provide CNX Midstream with the money to support an eye-catching distribution (MLPs pay distributions instead of dividends) that currently yields 8.9%.
CNX Midstream only pays out about 75% of its cash. The company uses the money it retains, along with its strong balance sheet, to expand its midstream infrastructure in support of the growth of CNX Resources and third-party customers. The MLP currently believes its projects can increase cash flow fast enough to support 15% annual distribution growth through 2023. That would double the company's payout over that five-year time frame.
A little less clear, but plenty of fuel
Hess Midstream Partners shares many similarities with CNX Midstream. It, too, is an MLP created to support the growth of a producing parent, in this case oil producer Hess. The company also generates predictable cash flow backed by long-term, fee-based contracts. And it pays a high-yielding distribution, which is an attractive 7% these days.
Hess Midstream currently expects that it can grow its distribution at a 15% annual rate through at least 2021. Supporting that forecast is the anticipated volume growth of Hess in North Dakota's Bakken Shale.
Hess Midstream would need to maintain that pace for two more years to double its payout from the current rate. That seems highly likely since Hess still owns several midstream assets that it could drop down to its MLP, including its Bakken well facilities and its infrastructure in the Gulf of Mexico. On top of that, the company could expand its business to support more third-party customers as well as acquire midstream assets from others. With no shortage of growth opportunities and a top-notch balance sheet to fund expansion, Hess Midstream could easily double its payout in the next five years.
High-octane dividend growth
Noble Midstream Partners currently offers the lowest yield of this trio -- though, at 6.3%, it's well above average. The MLP adds to the attraction of that payout by projecting 20% annual growth through 2022. That puts the company on pace to double its payout in just four years.
The main fuel for that forecast is expansion projects on the company's midstream systems to support the growth of its parent, Noble Energy, and third-party customers. But the MLP recently enhanced its growth prospects by securing three needle-moving investment opportunities. That trio of new investments positions Noble Midstream to grow its cash flow at a faster pace over the next couple of years, which would provide more fuel to support its distribution growth forecast.
The formula for a double-digit future yield
These midstream MLPs all pay attractive distributions that yield more than 5%. On top of that, each one expects to grow its payout by at least 15% annually over the next few years. That has them on pace to double their income streams in five years or less. Put another way, investors who buy today are setting themselves up to potentially earn a double-digit yield on their investment in the future.