Dividend stocks like ExxonMobil (NYSE:XOM) can provide valuable income or increased returns when dividends are reinvested. With a track record of 36 consecutive dividend increases, it's not surprising that many investors include ExxonMobil in income portfolios. However, it's not the highest-dividend paying option out there. If you're looking for dividend stocks with a little more pop, here's why you might want to consider Hess Midsteam Partners (NYSE:HESM), BHP Group (NYSE:BHP), and Greif (NYSE:GEF).
A high-income midstream play
Todd Campbell (Hess Midstream Partners): Surging oil and gas production at the Bakken shale. in North Dakota is creating plenty of dividend-friendly cash flow opportunity at Hess Midstream Partners, an LP spun-out of Hess Corp in 2017.
Oil production in the Bakken has more than quadrupled since 2010 and as a result, business is booming at Hess Midstream's gathering, processing and storage, and terminaling facilities. Hess Corp remains Hess Midstream's biggest customer and following a restructuring of its assets, Hess has doubled down on its activity in the Bakken. It increased the number of rigs operating there to six from four last year and as a result, its Bakken production increased to 117,000 barrels of oil per day from 105,000 BOE/D in 2017. Hess is guiding for Bakken production of 135,000 BOE/D, this year and over 200,000 BOE/D by 2021, so Hess Midstream should have tailwinds for a while.
Hess Midstream's throughput volume for crude oil gathering increased 54% and crude oil terminaling grew 42% in the fourth quarter compared to the same quarter the year prior. Gas gathering and processing also increased 10% and 9%, respectively, translating into year over year revenue growth of 14% to $171 million in the period.
Rising revenue resulted in net income increasing to $92 million from $77 million the year before, allowing Hess Midstream to increase its dividend by 15% to $0.3701 per unit. Currently, Hess Midstream's yields 6.6%, which is signifcantly higher than ExxonMobil's 4% yield.
Extracting value from the mining industry
Nicholas Rossolillo (BHP Group): Formerly known as BHP Billiton, diversified mining and energy giant BHP Group beats Exxon's dividend with an annual yield of 4.2%. That's even after a 17% rally so far in 2019. Though cyclical basic materials producers like BHP have taken a hit as of late from fears of a global economic slowdown, there's reason to believe the current commodity up-cycle isn't over yet -- including BHP Group's run higher.
After an extended slump that started in 2018, manufacturing notched an increase in activity in March -- especially in China where a slowing economy has also been hit by a protracted trade war with the U.S. In addition to manufacturers stabilizing in the world's most populous country, there's cautious optimism that an end to the trade dispute and punishment-by-taxation back-and-forth between the two countries is nearing an end. That would be welcome news for BHP and its peers.
BHP Group's business itself is also on the mend. The last commodity downturn in 2015 and 2016 took a toll on the mining conglomerate, reducing the stock's valuation by some 70% before beginning a long rebound ever since. In recent years, the company has been offloading less profitable operations to focus on maximizing shareholder value. Debt has also been getting reduced -- down 36% at the end of the first half of the 2019 fiscal year -- and net profits grew 87% during that same stretch compared with a year ago.
That's putting BHP in good position to make the most of the current commodities rally, as well as put the company in shape to handle the next downturn that will come at some point in the future. In the meantime, a lucrative dividend payout isn't too shabby.
No, you don't know this ultra-stable dividend payer
Anders Bylund (Greif): This is one of those companies that fill an essential space in a modern society, but nobody really thinks about it. Even if you use their industrial packaging products every day, it's probably just another steel drum or wax-coated cardboard container to you. It's a brutally commoditized business with slim profit margins and slow growth.
None of that stops Greif from generating a lot of cash and stuffing much of it right back into shareholders' pockets. Greif turns 13% of its $3.9 billion annual revenues into EBITDA profits and pays out 67% of its cash profits as dividend checks. The dividend yield stands at a generous 4.5% today.
Like the business itself, Greif's dividends move slowly and rarely. The annual payouts were raised by 5% last year, marking the first dividend increase since 2010. At the time of that dividend boost, management also said that they would look for opportunities to enhance Greif's cash returns to shareholders in the coming years. For the most part, Greif will put additional profits to work by reinvesting in sustainable growth operations. That's a smart way to keep the long-term value creation rolling, allowing dividend increases to happen naturally whenever the company's rising cash profits allow it.
That's good enough to crush Exxon's 4.1% dividend yield. Greif also trades at just 10.7 times trailing earnings and 10.7 times free cash flows these days, making it a far more affordable stock than Exxon's P/E of 16.7. What Greif lacks in exciting growth is more than compensated by its rock-solid stability and cash-generating proficiency.