AM Stock: Strong Dividends & Stock Growth
It’s easy to find a mediocre stock with a high dividend yield that magically gets higher as its underlying share price drops. There’s no better way to destroy wealth than to invest in that kind of company. A “Forever Stock,” on the other hand, is an equity that provides investors with a high dividend and a rising share price.
Antero Midstream Corp (NYSE:AM) is one of the good ones. It might not be a traditional oil and gas company, but it’s the kind of business that Jed Clampett would still get behind.
Denver, CO-based Antero Midstream owns and operates midstream energy assets that service gas production in two of the lowest-cost natural gas and natural gas liquid (NGL) basins in North America: Marcellus Shale and Utica Shale (Pennsylvania, Ohio, and West Virginia). (Source: “Operations,” Antero Midstream Corp, last accessed June 10, 2021.)
The company’s core business includes natural gas gathering, compression, processing, and fractionation. It also includes water handling and treatment. Antero Midstream owns and operates an integrated system of natural gas pipelines, compression stations, and processing and fractionation plants, as well as water handling and treatment assets.
The company provides gathering and compression services to Antero Resources Corp (NYSE:AR) under long-term fixed-fee service agreements and provides processing and fractionation services through its 50/50 joint venture with MPLX LP (NYSE:MPLX).
The company’s Gathering and Processing segment includes:
- More than 370 miles of low- and high-pressure gathering pipelines
- More than 2.7 billion cubic feet per day of compression capacity
- 40,000 barrels of natural gas processing capacity through the MPLX joint venture
- 1.0 billion cubic feet per day of processing capacity
(Source: “Gathering and Processing,” Antero Midstream Corp, last accessed June 10, 2021.)
Antero Midstream owns and operates a closed-loop system of freshwater pipelines and storage facilities to support the completions operations for Antero Resources Corp in the Marcellus Shale and Utica Shale basins. Antero Midstream provides freshwater and wastewater treatment services to Antero Resources under long-term fixed-fee service agreements. (Source: “Water Handling and Treatment,” Antero Midstream Corp, last accessed June 10, 2021.)
The Water and Handling Treatment segment includes:
- 38 freshwater storage facilities with a capacity of 18 million barrels
- 100,000 barrels per day of wastewater treatment capacity
- More than 275 miles of freshwater pipelines
Thanks to the company’s long-term fixed-fee service agreements, Antero Midstream Corp has a steady revenue stream and investors get high-yield dividends.
Currently trading at its highest levels since December 2018, Antero Midstream stock is up:
- 10% over the last month
- 45% over the last six months
- 113% year-over-year
- 41% year-to-date
Chart courtesy of StockCharts.com
Everything on Wall Street is relative, but even there, Antero Midstream Corp has been outpacing the broader market. Since the start of 2020, AM stock’s total performance equals a gain of 80.3%.
Over the same time frame, the S&P 500 has rallied by 30.6%. Meanwhile, the ALPS Alerian MLP ETF (NYSEARCA:AMLP) and the JP Morgan Chase Alerian ETN (NYSEARCA:AMJ), two of the biggest midstream exchange-traded funds (ETFs), are up by 1.1% and 4.7%, respectively.
Chart courtesy of StockCharts.com
26th Consecutive Quarterly Dividend
In addition to providing investors with strong share-price appreciation, Antero Midstream stock pays out a frothy annual dividend of nine percent, or $0.90 per share.
In April, Antero Midstream declared a cash dividend of $0.225 per share for the first quarter. This represents the company’s 26th consecutive quarterly dividend or distribution paid since AM stock’s initial public offering (IPO) in November 2014. (Source: “Antero Midstream Announces First Quarter 2021 Return of Capital and Earnings Release Date and Conference Call,” Antero Midstream Corporation, April 14, 2021.)
Admittedly, in 2020, Antero Midstream cut its dividend from $0.308 to $0.225 per unit. Normally, this would be awful news that investors would rebel over, but the company made the cut in order to preserve capital.
Antero Resources recently announced a new drilling partnership through 2024. As a result, Antero Midstream is investing an additional $65.0 million this year on capital projects to support the extra production. (Source: “Antero Midstream Announces Fourth Quarter 2020 Financial Results and 2021 Capital Budget and Guidance,” Antero Midstream Corporation, February 17, 2021.)
To get there and not assume more debt, the company cut its annual dividend. The cut is unwanted, yes, but it should help Antero Midstream generate an incremental $200.0 million in free cash flow after dividends through 2025.
To that end, the company remains financially solid. In the first quarter, Antero Midstream reported net income of $83.0 million ($0.17 per share), compared to a first-quarter 2020 net loss of $392.0 million ($0.81 loss per share). (Source: “Antero Midstream Announces First Quarter 2021 Financial and Operational Results,” Antero Midstream Corporation, April 28, 2021.)
The company’s adjusted net income in the first quarter was $1.1 million, or $0.21 per share, compared to $0.23 per share in the same prior-year period.
Antero Midstream’s adjusted net income was $98.0 million ($0.21 per share), a five-percent increase from the prior-year first quarter. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $219.0 million, a one-percent increase over the same period of the previous year.
Its distributable cash flow was $159.0 million, which was in line with the previous year’s quarter. Antero Midstream Corp’s free cash flow before dividends was up by 51% year-over-year, at $146.0 million. Its free cash flow after dividends was $39.0 million, versus a $50.0-million deficit in the first quarter of 2020.
Paul Rady, chairman and CEO, said, “Antero Midstream delivered another strong operational quarter focused on cost reductions and capital discipline. This allowed us to generate $146 million of Free Cash Flow before dividends and for the second time in company history, generate Free Cash Flow after dividends.” (Source: Ibid.)
Rady added, “We believe this capital discipline and the ability to internally finance both our capital budget and return of capital to shareholders will serve Antero Midstream well going forward.”
The Lowdown on Antero Midstream Corp
Antero Midstream Corp is an excellent energy play with a solid balance sheet. That helps it pay investors a frothy nine-percent dividend. The company’s enviable midstream operations also help it report great financial results, which has helped boost the price of Antero Midstream stock over the last year.
Things look bright for this dividend stock. In addition to the company’s expansion plans, the outlook for natural gas prices is bullish, which should help juice the gas volumes flowing through the company’s pipelines.