What happened

Antero Midstream (NYSE:AM) entered 2019 with high expectations. The energy specialist agreed to consolidate its two master limited partnerships (MLPs) into one corporation, which it thought would reduce costs and fuel high-octane dividend growth. Instead, it struggled to deliver on its promises last year. 

As a result, shares of the midstream company fell 32.1% in 2019, according to data provided by S&P Global Market Intelligence. Even after adding in its high-yielding dividend, the total return was a negative 24.5%. That significantly underperformed the red-hot S&P 500, which produced a 31.5% total return in 2019. 

Here's a look back at what caused Antero Midstream to slump so badly last year.  

A bright red arrow going down.

Image source: Getty Images.

So what

Antero Midstream put out its initial 2019 guidance in early January. At the time, it expected to generate between $680 million and $730 million of distributable cash flow. That would enable the company to grow its dividend by 36% to 38% while maintaining a coverage ratio between 1.1 and 1.2. Furthermore, Antero Midstream expected to invest $750 million to $800 million in capital projects to support the growth of its natural gas-producing parent Antero Resources (NYSE:AR), as well as its long-term dividend growth plan.

However, natural gas prices slumped throughout the year, which forced Antero Resources to slow its growth rate. That caused Antero Midstream to revise its full-year guidance. It now expects to generate $655 million to $665 million in cash while only investing $665 million to $685 million in capital projects. The companies also restructured some contracts, which will further impact Antero Midstream's cash flow next year. 

As a result of those struggles, the company paused its dividend growth plan. Instead of continuing to increase its payout, Antero Midstream plans to use those funds to repurchase shares. It bought back $125 million in stock by the end of the year. 

Now what

Antero Midstream initially expected that it would provide investors with a fast-growing income stream. However, weaker natural gas prices affected its parent's ability to grow, which has weighed on Antero Midstream's results. That's causing investors to become concerned about its ability to maintain its dividend -- which currently yields 16.7% -- given its projected coverage ratio of 1.1 in 2020. If its parent continues to struggle, Antero Midstream might have to cut its payout, which could cause its shares to take another tumble this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.