11% Yield, Record Earnings, 15% Dividend Growth Through 2023: CNX Midstream Partners LP – CNX Midstream Partners LP (NYSE:CNXM)

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Looking for dividend growth in the high yield space? The management for CNX Midstream Partners LP (CNXM) reiterated its commitment for 15% distribution growth for the next 3 years on its recent Q4 ’19 presentation:

(Source: CNXM site)

At the 2/7/20 price/unit of $14.35, 15% annual distribution growth would translate into a 12.61% yield in 2020 and work its way all the way up to over 19% in 2023:

With its latest distribution of $0.4143, CNXM’s forward yield is 11.55%. Like most LPs, they pay in a February/May/August/November schedule.

This distribution growth is backed by Minimum Well and Volume Commitments, which total $960M through 2023:

(Source: CNXM site)

Taxes:

CNXM issues a K-1 at tax time.

Distribution Coverage:

CNXM had 1.30X distribution coverage in Q4 ’19, and averaged 1.41X for full year 2019. Management raised the payout every quarter in 2019 and has raised it for 19 straight times.

That matched their 15% distribution growth target for 2019 – they were able to deliver on that promise via 31% DCF growth:

IDR Elimination:

Management did a $135M deal with its parent company/general partner CNX Resources Corp. (CNX) which will eliminate CNX’s Incentive Distribution Rights (IDRs) and convert the 2.0% general partner interest in CNXM into a non-economic general partnership interest.

CNXM received 26M CNXM common units and 3M newly created B units. However, the B units won’t receive any distributions until 1/1/2022, when they convert into common units. CNX now owns a 53.1% common LP interest in CNXM.

Those IDRs would have cost CNXM $177M in 2020-2022. The deal is structured for 3 payments to CNX: $50M in 2020 and 2021; and $35M in 2020.

(Source: CNXM site)

Record Earnings:

CNXM once again had big earnings growth in Q4 ’19 – revenues grew 15%; net income rose 13.8%; adjusted EBITDA was up 30.7%; and DCF grew 13.35%.

Every category hit a company record in Q4 ’19:

This wasn’t a 1-year fluke – CNXM has achieved 25% EBITDA growth and 24% DCF growth over the past 5 years:

(Source: CNXM site)

Growth Projects:

Management gave some detail on CNXM’s Capex program on the Q4 ’19 earnings call:

“During 2019 we completed the expansion of Morris Station and built in commission our Dry Ridge Compressor Station. In all we added just over 18,000 horsepower during the year.We are still on schedule with our Greenfield Buckland Station and expect to begin utilizing that station late spring. In addition to completing Buckland, we plan to expand our Dry Ridge area connect, install additional compression at Dry Ridge and install a new tap in the Texas Eastern directly from our Buckland Station.

Once those are complete, our Southwest Pennsylvania system is situated to support years of production from CNX and our other shippers. The stations have been designed for additional compression in the high capacity to be essentially plug and play and our unique dual line well connects will greatly assist our shippers as they come back for second and third trips to their paths. We expect continuous utilization of the capital we deployed in 2019.”

(Source: CNXM site)

Valuations:

At 6.43X, CNXM’s Price/DCF looks cheaper than other midstream companies we cover. It also looks cheaper on a Price/Book and EV/EBITDA basis.

Performance:

However, unlike some of the firms we’ve covered in recent articles, CNXM hasn’t been getting much love from Mr. Market. Although it held up better than the Energy Select Sector SPDR ETF (XLE) over the past quarter and year, CNXM has lagged both XLE and the S&P year to date, and it lagged the S&P over the past year.

Analysts’ Price Targets:

Analysts don’t appear to be that excited about CNXM’s 15% distribution growth either – they have a $15.00 average price target and a $17.00 highest price target, which would still give CNXM a double-digit yield for 2020, given its distribution growth target of $1.81.

Financials:

CNXM’s ROA, ROE, EBITDA/Interest coverage, and EBITDA margin all look much higher than sector medians. Its total Debt/Equity leverage is also much lower. While we don’t have a sector median for Net Debt/EBITDA leverage, we can say that the midstream firms that we cover have an average of 4.13X.

Summary:

We rate CNXM a BUY, based upon its distribution growth, its current attractive and well-covered yield, and its future prospects.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

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Disclosure: I am/we are long CNXM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

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