This Energy Stock Pays an 8% Dividend, and Nobody's Talking About It

The energy sector is a dividend investor's delight. By my count, 53 energy stocks trading in the U.S. sport dividend yields of at least 5%.

One interesting thing about that group is that it's not just home to the integrated oil and gas majors of the world. Except for a handful of names, including Energy Transfer and Enterprise Products, the high-yield energy patch is home to a bevy of pipeline stocks that many investors aren't yet acquainted with.

Hess Midstream yields nearly 8% and continues to raise its dividend. Image source: Getty Images.

Hess Midstream (NYSE: HESM) is a prime example of an energy stock with a big yield that's flying under the radar. It shouldn't be, and what really cements that notion isn't the yield so much as dividend dependability and the potential for long-term upside.

Honing in on Hess Midstream

Admittedly, I fibbed a little bit. Hess Midstream doesn't quite yield 8%. Its dividend yield was 7.7% as of Aug. 18. Hey, that's still more than 7x the dividend yield of the S&P 500.

Important to long-term investors is the fact that this energy company is among the midstream names that steadily raise distributions. Hess Midstream gently lifts its payout every quarter. In fact, it's on a 37-quarter run of dividend hikes. For those keeping score at home, that's nine years and some change.

The company's second-quarter dividend, declared on July 27, is nearly a penny higher than the first-quarter dividend. Obviously, a penny doesn't sound like much. Most of us see one a penny on the sidewalk and don't bother picking it up. But in the context of quarterly dividend increases, pennies here and there add up over the long haul. Hess Midstream's latest payout increase is in line with the 5% annualized growth the company is targeting through 2028.

Another reason Hess Midstream deserves more kudos in the energy dividend conversation is that it embraces the shareholder yield trifecta -- buybacks, rising dividends, and debt reduction. This midstream operator accelerated the repurchase of shares from an affiliate of Chevron, thereby reducing its dividend obligations, and has "approximately $1 billion of financial flexibility" through 2028, which it can use to continue rewarding shareholders while reducing debt.

Speaking of Chevron...

Hess Midstream and Chevron have a relationship stemming from the latter's massive $53 billion acquisition of Hess Corp., announced in October 2023. Through that deal, the buyer inherited the seller's 37.8% in the midstream company.

The Chevron/Hess Midstream relationship pays, well, dividends because the midstream operator is the energy behemoth's primary gatherer, processor, and provider of storage services in the oil-rich Bakken and Three Forks regions of North Dakota. In relationship terms, Chevron and Hess aren't a "situationship." Rather, they're highly committed, if not engaged. That commitment plays out in the two companies inking long-term, fee-driven agreements with each other.

There's nothing glamorous about this relationship, but Hess Midstream's ties to Chevron may be another reason it's perplexing that the mid-cap energy name isn't getting more love. More importantly, the Chevron relationship provides cash flow and revenue clarity, which support Hess Midstream's long-term dividend growth.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.