Dec. 3 at 5:22 PM
Western Midstream Partners is one of the largest midstream infrastructure operators in the Permian Basin.
$WES gathers, processes, transports, and handles natural gas, crude oil, NGLs, and water for producers, most notably for its parent and controlling company, Occidental Petroleum (OXY).
WES has four primary business segments:
1. Natural Gas Gathering & Processing
2. Crude Oil Gathering & Stabilization
3. NGLs
4. Water Gathering, Disposal & Recycling
WES is one of the very few high-yield (9.26% yield) companies I consider ideal for long-term income investors.
The reason is simple.
The yield is extremely high… but the risk is relatively low.
In fact, they highlight that their future capital allocation priorities are based off the fact they feel their leverage ratios are in a healthy position-
Allowing them to pursue expansion opportunities and grow dividends at a mid to low single digit rate. (see pic 1)
WES currently has a healthy distribution coverage ratio of 1.12.
And with the way distributable cash flow per share is projected to grow over the next 4 years, that coverage ratio has the ability to expand. (see pic 2)
Most high-yield companies carry red flags.
WES does not.
In fact, the opposite is true:
- Investment Grade credit
- Very low leverage (≈2.9×)
- Strong and rising free cash flow
- Distribution coverage expanding
And a sponsor (OXY) that wants the distribution to rise.
This combination is incredibly rare in the income-investing world. (see pic 3)
When a company with this profile yields around 9.2%, one of two things happens:
1. The distribution gets cut
2. The unit price rises until the yield compresses
Given WES’s improving fundamentals, investment-grade credit, and sponsor incentives, the second scenario is far more likely.
A re-rating to a 6%–7% yield, which is typical for healthy midstreams, would imply significant upside beyond the income alone.
