Energy demand continues to remain robust, and with the global economic backdrop, energy-related stocks that provide a dividend yield could help your portfolio mitigate some of the adverse effects of the current inflationary environment and market volatility.
Midstream companies primarily benefit from demand rather than the price of energy and tend to be less volatile than upstream companies. As a result, their cash flows tend to remain relatively steady, which is useful when there is economic and market volatility. Energy demand is not as susceptible to global slowdowns as the price of energy and can overcome some of the effects of global slowdowns. Furthermore, due to geopolitical factors, Midstream companies are poised to enjoy higher revenues during the next few quarters.
Macroeconomic outlook: The global economy has continued to slow down, and natural gas prices are weighing on consumers’ pockets. Therefore, Midstream companies’ reliance on volume may be hampered if the economy slows down and energy demand reduces.
Midstream Stocks That Might Be Right For You:
Cheniere Energy Partners (NYSE: CQP) operates natural gas liquefaction and export facilities across five sites with a total liquefaction capacity of 17 billion cubic feet. In addition, it has two marine berths with a capacity of 266,000 cubic meters and regasification facilities with approximately 4 billion cubic feet. As demand continues to remain strong, management has guided EBITDA for the year should come in around $3 billion. Furthermore, the future looks bright as key partners renew their contracts; these are long-term contracts and should result in an increase in revenue for the company. The company also played a prominent role in replacing Russian gas in Europe and witnessed a 66% increase in LNG shipments to the continent during the first quarter. Capacity weighed on Cheniere’s ability to fulfill demand during the quarter, with Asia witnessing a fall in delivery as deliveries to Europe increased. Management has outlined its plan to increase capacity to meet Asia's demand in the coming quarter, which should reflect in earnings moving forward.
The company also has an attractive dividend yield of around 6.8%, which should be quite useful to investors that are looking for protection. Revenue increased 63% y-o-y and should continue to grow for the rest of the year due to demand from Asia and Europe. The stock continues to trade at a relatively moderate valuation, with price-to-earnings at 15x earnings. Meanwhile, forward earnings should fall to around 11x during the latter quarter.
Cheniere Energy Partners is an important part of the American shale story, and it should continue to do well as long as economic fundamentals remain intact.
Hess Midstream (NYSE: HESM) is an American midstream company that owns and operates midstream assets. The company has three segments under its operations: Gathering, Processing & Storing, and Terminology & Export. Hess continues to do well due to the strong global demand for natural gas and oil. The company remains a crucial player in the Bakken shale basin and Guyana. Guyana in particular is likely to be quite profitable for the company, as significant discoveries increase production in the near future.
The stock trades at a relatively moderate forward P/E of 11x and provides a dividend yield of 7.75% and a return on equity of 30%. The company's prospects remain solid, and management has reiterated that it will continue to increase distribution proceeds provided the business continues on a positive note, which should help maintain or improve dividend yields.
The management forecasts: “For full-year 2022, we expect gas processing volumes to average between 330 million and 345 million cubic feet per day. Additionally, we expect crude terminal volumes to average between 110,000 and 115,000 barrels of oil per day and water gathering volumes to average between 70,000 and 75,000 barrels of water per day. We expect physical volumes to remain at or below MVC levels in 2022, providing approximately 95% revenue protection to our forecast, and giving a high degree of confidence to our financial guidance, which continues to project adjusted EBITDA in the range of $970 million to $1 billion.”
Hess remains a relatively safe play with its business well-poised to take advantage of demand but not be as affected by economic headwinds as downstream companies.
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