Please ensure Javascript is enabled for purposes of website accessibility

5 Oil Dividends Most at Risk in May

By Matthew DiLallo - Updated May 5, 2020 at 4:51PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This subsector of the oil market will likely see another flood of dividend reductions this month.

Energy companies have been slashing their dividends left and right during this year's oil market downturn. Several companies gutted their payouts as prices crashed in March, while many more followed their lead in April. This downward trend will likely continue in May.

Here are five oil-fueled dividends at the greatest risk for a reduction this month.

A blue sign reading risk ahead.

Image source: Getty Images.

Oasis Midstream Partners: Current yield 38.7%

Oasis Midstream Partners (OMP) entered this year believing it could grow its high-yielding payout at a 20% annual rate, fueled by the growing volumes of its producing customers. However, with oil prices crashing below $20 a barrel, its clients have had to slash spending on new wells, which will impact the volumes flowing through its midstream assets. That will eventually affect the fees Oasis collects, which might force it to join many of its pipeline peers by slashing its payout and using that cash to shore up its financial situation. Given its current sky-high yield, the market seems certain that a payout reduction is right around the corner, which Oasis could announce when it reports its first-quarter results on May 11. 

Rattler Midstream Partners: Current yield 17%

Rattler Midstream (RTLR -0.07%) recently started paying a dividend that it just increased by 16% in February thanks to the rapid expansion of its midstream system. However, with commodity prices crashing, its main customer won't complete as many wells this year, which will impact the company's earnings. While Rattler said in March that it plans to maintain its current distribution, the market doesn't believe it, which is why the yield has risen above 15%. If Rattler decides to get more conservative, a payout reduction could come as soon as May 6 when it announces its first-quarter results. 

Shell Midstream Partners: Current yield 14%

Shell Midstream Partners (SHLX 1.28%) closed a transaction with its parent, oil giant Shell (RDS.A) (RDS.B), early last month to simplify its structure and acquire some assets. At the time, the midstream company also stated that it intended to maintain its distribution at the current level for the rest of the year, even if it had to dip into its credit facilities to make up for any cash flow shortfalls. However, with market conditions continuing to deteriorate, and Shell shocking the oil patch by slashing its high-yielding dividend at the end of last month, it has added to the market's concerns that its midstream arm could do the same. That announcement could come as early as May 7, when Shell Midstream reports its first-quarter results.   

BP Midstream Partners: Current yield 12.9%

BP Midstream (BPMP) announced last month that it planned to maintain its dividend at the current rate for the balance of the year instead of increasing it by 10%. The market, however, isn't confident in that view given the continued weakness in commodity prices and fuel demand, which is evident in the company's current double-digit yield. BP Midstream, therefore, might join others in the sector and reduce its payout to be on the safe side, which it could announce as early as May 8 when it reports its first-quarter results. 

Hess Midstream: Current yield 10.8%

Hess Midstream (HESM) just increased its dividend a couple of weeks ago by 1.2%, showing its confidence in its ability to deliver on its long-term growth plan. Investors, however, remain skeptical of the dividend's sustainability (hence the double-digit yield) given the collapse of oil prices, which will impact the finances of its parent, oil producer Hess (HES -0.52%). That company has already slashed capital spending by 27% this year, forcing it to reduce its drilling fleet in the Bakken (where Hess Midstream gathers and processes its production) from six rigs down to just one. That will eventually impact the volumes flowing through its systems as well as the associated fees. As a result, Hess Midstream has already reduced its long-term distribution growth rate outlook from 15% to 5% per year. However, it might opt to go even further by following the lead of many of its peers and slashing its payout so that it can shore up its financial profile. That's something to watch when the company reports its first-quarter results on May 7.  

Expect more dividend cuts in the oil patch

Any time a dividend yield rises above 10%, it suggests that the market doesn't believe the company can sustain its current payout. That's clearly the case with these five midstream companies. Consequently, they're in the high-risk group for a reduction, which could come as early as this month.  


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Shell Midstream Partners, L.P. Stock Quote
Shell Midstream Partners, L.P.
$14.25 (1.28%) $0.18
Hess Midstream Partners LP Stock Quote
Hess Midstream Partners LP
Oasis Midstream Partners LP Stock Quote
Oasis Midstream Partners LP
BP Midstream Partners LP Stock Quote
BP Midstream Partners LP
Rattler Midstream LP Stock Quote
Rattler Midstream LP
$13.64 (-0.07%) $0.01
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
Hess Corporation Stock Quote
Hess Corporation
$105.39 (-0.52%) $0.55
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.