Q: Is the Hess Midstream Partners (NYSE: HESM) transaction a good deal for unitholders, or should we take this opportunity to cut and run before there’s real damage?
A: We think the positives outweigh the negatives of this deal. With Hess Midstream converting to a corporation, those who hold it outside of an IRA will probably pay higher taxes on distributions going forward. There will be no K-1 to file at tax time, however. Most importantly, management is sticking to its current dividend policy of 15 percent annual increases, which remains very attractive off a current yield of nearly 8 percent.
It’s pretty clear that converting to a C-corp is no panacea for a struggling MLP. Nor does it necessarily “widen the investor base,” as conversion proponents proclaim. In fact, you could make a pretty good case that most former MLPs actually alienated and lost a sizeable portion of their investor bases by changing structure.
Wary prospective shareholders almost certainly partly explain why shares of Kinder Morgan Inc (NYSE: KMI) are still trading around $20. That’s despite the company posting quite stellar operating results and doubling the dividend since spring 2018, with a lot more to come.
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Elliott and Roger on Mar. 25, 2021
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