HESM 在暴跌后值得买入；与 Chevron 的退出交易改善了单位经济性并锁定长期收入，使该股相对内在价值被低估。

My top high yield dividend stock, HESM, just crashed 15% in a single day. This was 25% of my dividend portfolio, paying me over $8,000 a year in annual dividends, and I woke up today to a $14,700 loss.

But this sell-off was caused by a real piece of news that I needed to look into. I woke up and I had texts and calls from people cuz they know I own HESM. Our community in dividenddata.com was messaging and talking about HESM, wanting me to do a video on it, get my thoughts.

So today I'm going to give my full breakdown on what happened with HESM and why it sold off 14% in a day.

And that news has to do with Hess Midstream's main sponsor and the primary source of their revenue, Chevron. Chevron and Hess Midstream just had a transaction that really transforms the relationship between the two companies, and it completely blindsides some people who were investing in Hess Midstream for the sole reason of they thought Chevron would end up acquiring it.

I personally was never in that camp, and when I started buying Hess Midstream last year, I was getting comments in some of the videos I put out where they were asking me and wanting my thoughts on a Chevron acquisition. And that wasn't a part of my investment thesis.

Today we found out that Chevron is out of Hess Midstream. And when I say out, I mean as an owner. So here's what's happening with the deal. Chevron is no longer going to be an owner of Hess Midstream.

HESM is getting all 38% of their units and this is now going to be a fully publicly owned independent company. There is no longer that sponsor relationship.

HESM is giving Chevron $200 in cash, but then on top of that they are also giving Chevron lower fees in exchange. This is for 2027 to 2033.

On top of this, Chevron is also divesting out of the DJ Basin and they are giving those midstream assets located in Colorado to HESM. So, HESM now owns two different regions of midstream assets.

On top of that, Chevron is giving HESM a 20% stake in the Saddlehorn pipeline and that's 100% of that GP relationship.

So, HESM is giving them some cash, agreed upon lower fees, and both parties have negotiated contracts now through 2045. This is a huge extension of their existing contracts. So, they have Chevron locked down to 2045.

So, this is the exact opposite of what some of the shareholders of HESM wanted where they wanted Chevron to end up buying HESM. Instead, Chevron is exiting completely as a sponsor.

HESM is now a fully independent public company. There's no takeout premium to go private.

HESM's going to be forming a new fully independent board. They're also going to be revealing a new company name in the future and this whole transaction is expected to close year-end 2026.

was the market's verdict when this news was announced? They absolutely hated it. The stock sold off 14.63% and went from $38.69 to $33.03.

The activity level in HESM was 10x the normal volume, so this was a very hyped up day for HESM.

So, HESM, I mentioned, one of my top holdings. My total return is still positive on it cuz I bought it around this time last year, where also had a big crash. And what do you know, that one was also caused from some Chevron-related news.

But, the interesting thing is that in that year, the dividend for HESM went up 7%. So, in terms of yield on cost, it's actually the highest dividend yield of the past 5 years right now for HESM. It's the 100th percentile.

After today's stock price crash, the forward-looking dividend yield is 9.55%. So, the yield on cost is higher than where I was buying the stock in 2025. And this is where we get to the potential opportunity for those of you if you're looking to start building a position in HESM.

Because one part of the news that I will be discussing is how this company has been de-risked, and they have basically guaranteed that they will be around as a public company for many, many more years to come.

That wasn't exactly clear before and in some of my old AGSM videos where I talked about that Chevron acquisition possibility, I didn't want that to happen because I wanted this to be a long-term position I could build up and reinvest all my earned dividends in.

So, first let's start with the absolute numbers and the headline here is that the company is getting smaller. In 2026, the guidance for adjusted EBITDA was $1.2 billion dollars and in the 2027 guidance they just gave, the midpoint was $900 million. That's a 27.3% reduction.

Now, for free cash flow, the guidance for the public shareholders plus the unit holders was $922 million and in 2027 the midpoint guidance is $575 million. That's -37.7% adjusted free cash flow.

So, in terms of the absolute raw numbers, Hess Midstream is now a smaller company. Despite it getting more assets and I'll dive into that.

But, this is where it gets interesting because now that economic value is split up between less hands. There are fewer slices of the pie. Before the deal, there was 206.18 million shares or units and they have now canceled out the roughly 40% of economic ownership that Chevron had.

So, after closing, there will only be 127.9 million units or shares.

So, that means you who owns the public holding of AGSM, you now own roughly 38% more economic interest. So, each of your individual holdings are now actually worth more relative of the ownership.

So, this is where it gets interesting. Now, on a per unit basis, it's actually not as much of a decline as the raw numbers show. Ultimately, the per unit or per share metric is what matters here.

So, adjusted EBITDA per unit based on the 2026 guidance before this was $6 and based on that lower 2027 guidance, it would actually now be $7.04, which is a positive 17.2% increase.

Adjusted free cash flow is basically flat going from $4.47 to $4.50 per unit. That's plus 0.5%. The distribution held at the Q4 2026 rate, which I'll explain that that's a big thing since many of us are dividend investors here, and the distribution was a big part of investing.

There's a lot of news related to that. But based on 2026 of $3.17, they're going to have one more increase in 2026, which will bring it to $3.23 for 2027. So, you're still going to be getting more distributions next year than you did this past year.

However, HESM now has more debt per unit as well. Previously, this was the best midstream company in the entire market in terms of their debt-to-EBITDA ratio. It was around 3x, and now it's closer to 4x. There was a 61% increase due to this deal.

And I'll dive into all that as well. Now, when I was reading into this, I was like some of you probably were. I was looking at the absolute numbers, and I was wondering what happened to all the cash flow.

Because I already did the math back then. I already knew that they were going from three rigs to two rigs, and that didn't really make sense for the entire difference in losses here.

So, the big change around free cash flow here with HESM comes from these new fee cuts. And they did that in exchange for taking out the ownership of Chevron, plus getting some long-term contracts.

So, they have a more guaranteed long-term anchor customer.

That's estimated to decline $475 million of their total adjusted free cash flow in 2027. Now, they're making that up some with their new assets in the DJ Basin and Saddle Horn economic interest.

That's another $200 million up estimated there. And that's how you get to the $575 million of estimated adjusted free cash flow in 2027 for Hess Midstream.

Now, those absolute decline numbers that I showed previously included economic ownership associated to Chevron because there's like all this weird stuff with the partnership. It used to be even weirder in the past.

They had another GP previously. It looks like it's going to be a lot more simple going forward, which will be nice.

But over the trailing 12 months, HESM public shareholders had $694 million of free cash flow. So that still will be going down on an absolute basis.

And here's the 2027 guidance if you don't want to believe me. This is from the official Hess investor presentation that they just put out today. Adjusted EBITDA of $850 million to $950 million, CapEx of $125 million.

And the nice thing is that these are all very mature assets. They don't require a lot of reinvestment. So these things generate best-in-class industry generating free cash flow.

Adjusted free cash flow $525 million to $625 million, which more than covers the distributions. So after distributions, they'll have an additional $110 million to $210 million.

And their basic plan right now is they want to pay off some of that debt in the short term. They're going to do their fourth quarter 2026 distribution growth that they already promised.

And then 2027, their plan is to maintain the dividend at the current amount.

So one way to think about this deal is that Hess Midstream is paying for the buyback of Chevron's shares by basically giving up some of their fees. They're giving up about $285 million of free cash flow in the next few years.

Now here's the thing, they also don't have to pay those distributions to Chevron because Chevron was an owner. So they were getting distributions as well. So they don't have to pay $253 million of distributions.

So it really only cost them about $32 million. And they were able to retire 38% of Chevron's ownership plus a $200 million cash payment at signing.

If you were the management of Hess Midstream and you wanted to grow the business in the long run, this was a big win. They now have guaranteed contracts through 2045. It's still fixed fee with CPI escalators.

So, that means it's going up every single year with inflation. That's a cap of 3% in the back end and 2% in the DJ, which they just got.

They rewrote some of the minimum volume commitments, and now it's a minimum revenue commitment. In principle, it's the same, but it basically protects the downside. About 70% of HESM's revenue is fully protected to the downside.

They have an 80% revenue floor through 2033, and it can never go below that level. They set it up where it has to go up every single time.

They grew EBITDA per unit for the public shareholders, and is now a more independent diversified company with two different basins, plus a 20% ownership stake in a pretty large pipeline.

Now, where they're losing is that distribution growth is ending in the short term. They said no growth in 2027. They haven't given any comments as to how much growth will be in the years after that.

In my opinion, I think there still will be growth as the business will be growing overall. But, the question is how much they want to pay up that debt. have more leverage. It's about a 4.1x debt to EBITDA ratio.

By the way, that's still less than MPLX, which is another midstream asset that I own. They were previously at a 3x multiple, which was the lowest in the entire industry of public midstream stocks.

Chevron is still their biggest customer. However, it is more diversified now. Third parties are now up to 20% of their overall volumes. It was less than 10% before.

And there's no longer the potential win of a buyout in the short term. And you can make the argument that HESM's dividend payment is actually more secure now than it was earlier this year.

They have 1.39x distribution coverage with their free cash flow. So, that gives a payout ratio of about 72%, and on the lowest end of their guidance, it's 79%.

The only risk here is that now their leverage is higher. And in July 2027, they have to do some refinancing on debt. But, in my opinion, I think they're actually in a much better position relating to being able to raise money, get new debt, and that's due to the long-term contracts they have with Chevron.

The fact that they have that locked down to 2045, it makes it much easier to raise debt. They're in a more secure position with more reliable cash flow.

But, let's dive into that dividend growth question because that was a big reason why everyone liked HESM. This company raised their distribution every single quarter, and it continued going up and up even through 2020 when the oil and gas market was doing terribly.

Many midstream stocks cut their payments. HESM did not. They continued raising it.

And the five-year compound annual growth rate of the dividend is 9.36% and that's crazy for a stock which is now yielding a 9.55% dividend yield. And that was one of my big reasons why I loved this stock.

It was the combination of high yield and high dividend growth.

But, now the growth is going to be done for 2027. So, they're going to be doing a Q4 2026 increase cuz they have one more this year. And this is from their official investor presentation.

Their plan is to hold distributions at that level and then maintain through 2027. So, based on what they're saying, there will not be a dividend increase in 2027.

And this payment is now very secure going into the future, but they're going to be using the excess free cash flow that they generate to pay down some of that debt. They want to target a 3.5 to 3.7x adjusted EBITDA ratio.

Previously, they were getting criticized by some people because of the 3x ratio and that's cuz they had no way of deploying capital. But, now after this deal, they're in a position to pursue even some growth opportunities because they're fully independent company.

They have a more diversified asset base and they have a foundation to kind of play around and try and grow for the future.

So, management said they're going to be looking for some opportunities to increase their scale and expand the business profile even beyond the DJ Basin assets they just got and that pipeline 20% interest.

However, they did tease and they said this on the the call as well. This doesn't mean dividend growth is over from here. They're just not going to be doing that 5% plus commitment that they've been doing every year, at least for 2027.

They said potential share repurchases and distribution growth will only be funded with excess adjusted free cash flow after those base distributions. And right now, the guidance is $110 million to $210 million of adjusted free cash flow after that base distribution.

Now, in 2027, a lot of that will likely go to the debt. And then it's pretty unknown beyond that. They could continue that in 2028, in 2029, this is assuming no growth from these estimates.

They could get down to a 3.7x ratio by then, and that'd be the base case for when dividend growth would start accelerating again for HESM. And then by 2030, they would likely be at that 3.5x, the lowest end of the leverage ratio.

But you have to keep in mind that their business is going to be in a better position to keep growing from now on. And they have built-in fee rises and escalators. So, on the back end, they're going to be getting 3% just from that CPI increase. They're going to be getting 2% in the DJ.

So, if you're like me and you're reinvesting your dividends or your distributions in HESM, if you assumed the old dividend growth rate versus the new plan, and then you also factor in the drop in stock price that just happened, your income actually wouldn't end up being that different.

With this drop in stock price, you'd likely actually pick up more units over time. And that's because you're reinvesting at lower prices.

And I'm actually looking forward to that with my HESM stake, reinvesting my dividends. I hope the stock price stays down over the next few months. And now the business is trading at an even more attractive valuation.

These are using the 2027 guidance numbers they gave. It's now trading at 8.81 times EBITDA, 7.35 times price to free cash flow, at a 13.6% free cash flow yield. And the distribution yield factoring in one more increase that they said they're doing, that'll be 9.79%.

And I want to give you some estimates of what the current intrinsic value per unit is for HESM based on the new guidance they just gave. So, if you assume they should trade at nine times EV to EBITDA, that would give a $34.40 intrinsic value.

If the stock were to trade at 12% free cash flow yield, that would give an implied value of $37.46. If you do the dividend discount model on it, there's a range depending on what kind of growth rates you have on the stock over time, but the base estimate was $39.94.

If you do a DCF through 2045, the base case is $46.78.

So, this sell-off in stock price bringing the price down to $33.03, it kind of gives you more of a margin of safety buying into HESM. And yes, the stock price had a huge drop on the day, but I don't think the intrinsic value of the company really declined that much from this news, and you can make an argument that it went up.

And the one thing I know is that this midstream business is going to be around for a lot longer now. By the way, in the description and pin comments video, I'll try and attach some of uh the documents that I found over time, the investor presentation, the press releases, all that, because they're pretty interesting to read through, and you should read through it if you're a shareholder.

And the management of Hess Midstream, they are definitely more bullish on the future after this deal. And it makes sense, it puts them in a way better position for future growth.

They're no longer as reliant on Chevron. They can act independently and grow the business.

In one quick deal, they went from a one basin isolated company to now they have two very good midstream assets in different basins. Plus a 20% stake in a pipeline.

And Hess Midstream now with the DJ plus the Bakken, they are the second largest production asset group for Chevron. The largest is the Permian Basin.

Their combined gathering volumes have gone up significantly. The Bakken had a lot of gas, which I preferred and liked, but they are growing that now even more. Plus in the DJ, they get increased crude gathering. So, overall, their volumes are up.

And these are two mature areas that don't require a lot of reinvestment. So, they have best-in-class free cash flow conversion. It's greater than 60%. What they like about the DJ Basin, it's Chevron's primary partner.

So, with the DJ Basin acquisition, they get gathering and transportation pipelines. Chevron is still the primary customer there, but they said that they see significant third-party customer volume and opportunity.

They have a 20% ownership in the largest crude oil pipeline out of the basin. That's the Saddlehorn pipeline. The two other owners are Oneok, that's another public stock. They own 40%.

Plains, I think that's another public stock. They own 40%. And this transports from Colorado down to Oklahoma.

And this is on top of their existing Bakken gas gathering and processing, crude terminaling and gathering, and water services. And they have 100% fixed fee contracts through 2045 with Chevron.

That includes downside protections. They have 80% minimum revenue commitments through 2033, and that cannot ever be adjusted downwards once set.