Antero Midstream Delivers Fifth Consecutive Annual Boost, Offers 10% Dividend Yield (NYSE:AM)

Since its initial public offering (IPO) in 2014, the Antero Midstream Corporation (NYSE:AM) has boosted it annual dividend distribution every year and currently offers its shareholders a Dividend Yield in excess of 10%.

The company’s share price decline over the past two years was one of the factors driving the dividend yield growth. However, the increasing dividend payouts and the rising distributable cash flow (DCF) coverage contributed significantly as well.

DCF is generally cash flow for paying unitholders that remains after a partnership already made payments to its general partners. While the DCF is not a standard financial metric governed by Generally Accepted Accounting Principles (GAAP), investors use the measure to gauge the available cash for distribution to unitholders or to estimate the partnership’s future growth potential. However, since DCF is not a GAAP accounting standard, there is no specific rule that defines how the metric should be calculated.

To calculate the DCF, some equities deduct non-cash associated items, one-time expenses or gains and maintenance capital from net income. Another similar option is to take the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) — or adjusted EBITDA — and back out non-cash line items. Yet another method is to start from cash flow from operations and adjust for non-cash items.

Regardless of the calculation methodology, DCF can be an effective measure for determining whether a master-limited partnership (MLP) is a potentially good investment. However, investors must evaluate DCF carefully and use the metric in conjunction with other financial concepts and indicators to ensure a comprehensive investment analysis.

With a current 1.1x DCF coverage and a 1.2x target for 2020, Antero Midstream appears on track to achieve its DCF coverage of at least 1.3x over the next few years. To achieve the 1.3x targeted DCF coverage ratio, Antero is forecasting a DCF compounded average growth rate between 18% and 25% through 2022. The lower limit of that range is based on and average crude oil price of $50 per barrel and the upper limit hinges on the crude oil price increasing to $65 per barrel.

Antero Midstream Corporation (NYSE:AM)

Headquartered in Denver and formed by Antero Resources in 2012, Antero Midstream Corporation (NYSE:AM) owns, operates and develops midstream energy infrastructure to service Antero Resources’ rapidly increasing natural gas and natural gas liquids (NGL) production in the Appalachian Basin. Antero Midstream focuses on developing midstream infrastructure in two of the premier North American Shale plays — the Marcellus and Utica Shales. The Marcellus Shale produced nearly 35% of total U.S. natural gas supply in 2018. Additionally, Antero Midstream provides gathering and compression services to Antero Resources under long-term fixed-fee service agreements and provides processing and fractionation services through its 50% ownership in a joint Venture with MPLX, L.P. (NYSE:MPLX).

As of July 2019, the Antero Midstream Corporation operated nearly 400 miles of low and high pressure NGL-gathering pipelines. Additionally, the company’s current compression capacity exceeds 2.7 billion cubic feet per day. The joint venture adds additional daily capacity to process through fractionation 1 billion cubic feet of natural gas into 40,000 barrels of natural gas liquids. In addition to its natural gas operations, Antero Midstream also owns and operates an integrated closed-loop system of fresh-water pipelines and storage facilities. This system includes the Antero Clearwater Facility — the largest wastewater treatment facility in the world designed for oil and gas operations.

Dividends

The Antero Midstream Corporation’s most recent dividend declaration announced a 1.7% boost to the company’s quarterly dividend amount. This hike advanced the quarterly payout from $0.3025 in the previous period to the upcoming $0.3075 distribution. The upcoming dividend payout corresponds to a $1.23 annualized amount and a 10.3% forward dividend yield.

The quarterly distribution doubled for the second quarter of 2019 and the upcoming $0.3075 distribution next month will be nearly 150% higher than the $0.125 payout from the same period last year. This rapid dividend income increases have driven the current yield 87% above Antero’s own 5.5% average dividend yield since the 2014 IPO. Over the past five years, Antero Midstream has enhanced its annualized dividend payout 242%. This advancement pace is equivalent to an average growth rate of nearly 28% per year.

While outperforming its own five-year average by a wide margin, Antero’s current yield outperformed average yields of the company’s industry peers by significantly higher margins. Compared to the 2.36% simple average yield of the overall Basic Materials sector, Antero’s current 10.3% yield is 330% higher. While the 3.93%, average yield of company’s peers in the Oil & Gas Pipelines industry segment is greater than the Basic Materials sector’s figure, Antero’s current yield is still 160% higher. Furthermore, Antero’s yield even outperformed the relatively high 9.85% average yield of the Basic Materials sector’s only dividend-paying companies by nearly 10%.

While the dividend income payouts continued to rise, Antero’s share price trended in the opposite direction over the past two years. Despite robust increases, the dividend distributions were unable to make any significant impact on the company’s double-digit-percentage total losses over the past 12 months, three years and since the 2014 IPO.

However, some technical indicators, such as the Relative Strength Index (RSI), suggest that the Antero stock might be nearing the oversold status. However, an oversold status can last a long time before the share price turns bullish, if at all. Additionally, the oversold status is not a clear buy signal either. Therefore, investors should evaluate additional indicators and metrics, as well as Antero’s fundamentals and operational forecasts before deciding to act.

However, those investors who decide to take a chance and contemplate going long on the Antero stock, should consider doing so before the upcoming ex-dividend date on July 25, 2019. All investors who own shares prior to the ex-dividend date, will receive the next round of dividend payouts on the August 7, 2019, pay date.

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