Western Midstream Partners (WES), an energy sector entity known for its master limited partnership (MLP) structure, offers an impressive dividend yield exceeding 8%, yet it remains largely unnoticed by many financial analysts. This limited attention from Wall Street, which tends to favor growth-oriented equities, means WES is frequently overlooked by a significant portion of the investment community.
Currently, a mere 14 analysts cover Western Midstream Partners, with only four recommending a 'buy' rating, nine suggesting a 'hold,' and one advising a 'sell.' In contrast, major competitors such as Energy Transfer and Enterprise Products Partners attract coverage from 21 analysts each, receiving predominantly 'strong buy' or 'buy' recommendations. Western Midstream's smaller scale, lesser diversification, and strong reliance on Occidental Petroleum, which accounts for a substantial portion of its revenue, contribute to this reduced analyst interest. Despite these factors, the company's financial stability is noteworthy. Western Midstream’s distribution is built on a strong foundation of stable cash flows from long-term, fee-based contracts with Occidental Petroleum and other clients. The company projects distributable cash flow between $1.9 billion and $2.1 billion this year, comfortably covering its $1.5 billion annual distribution. Moreover, it maintains a healthy balance sheet with an investment-grade rating and a low leverage ratio of 3.1 times.
This financial robustness provides the flexibility needed for strategic expansion, including opportunistic acquisitions and organic growth initiatives. A recent example is the $1.6 billion acquisition of Brazos Delaware, which enhances its operational footprint and diversifies its revenue streams away from its primary customer. Additionally, ongoing organic projects, such as the Loving II gas processing plant and the Pathfinder Pipeline, are set to commence operations early next year. These growth drivers are anticipated to fuel an annual adjusted EBITDA growth of 4% to 5%, which in turn supports a consistent low-to-mid single-digit annual increase in distributions. For investors comfortable with the Schedule K-1 tax forms associated with MLPs, the combination of an over 8% base cash return and steady distribution growth suggests a potential annual total return of 12% to 14%, making Western Midstream a potentially lucrative option that traditional Wall Street analyses might be missing.
Investing in companies like Western Midstream Partners highlights the importance of looking beyond conventional metrics favored by many market analysts. True value and opportunity often reside in areas where fundamental strengths are strong, even if they are not the flavor of the month. By seeking out well-managed entities with solid financial bases and a commitment to shareholder returns, investors can discover overlooked gems that offer substantial long-term growth and income potential. This approach encourages thorough research and a broader perspective on market opportunities, fostering a more resilient and rewarding investment journey.