My Top Undervalued Dividend Stock To Buy Now (8.3% Yield + 10% Growth)

My top high yield, undervalued dividend stock that I've been buying, HES Midstream, ticker symbol HESM, just sold off nearly 10% today. I used that as an opportunity to continue building my stake in the company, buying another 83 shares, bringing my total share count to 448, and it is now my second largest dividend payer in my long-term dividend growth stock portfolio that I update every single month on the channel. So why did HESM fall 9.8% on Friday? Well they just put out updated guidance after Chevron announced that they will pause drilling at one of the 4 rigs they acquired from HES Corporation in the Bakken region. That was a part of the Chevron HES acquisition that closed earlier this year. And as a result, Chevron is now the main sponsor and owner of HES Midstream, and they are also the number one customer of HES Midstream, and the overwhelming majority of the volumes now go through those Chevron rigs. So today I'm going to break down what that means for HES Midstream stock, why the stock fell nearly 10%, whether the dividend may be at risk from this news, and finally whether this may just be a great buying opportunity for HES Midstream over the long term if you're a dividend growth investor. Because this dividend yield now sits at 8.28% for a company that has been growing their dividend payment at an 11% 5-year compound annual growth rate. If you buy HES Midstream right now, you're getting one of the highest dividend yields of the past 3 years. So a little bit of a hint, that's why I've been using it as buying opportunity. But that said, I'm still going to dive into this news and explain it all, so that you can make your own informed investing decisions, don't just do whatever I'm doing. With that said, let's roll the intro and get into this HES Midstream stock analysis. My name is Zach, this is Dividend Data, and you should leave a like and subscribe to the channel if you enjoy the video. Throughout, I will be using the best stock research tool for dividend investors, which is DividendData.com. That is what I'm using throughout to research HES Midstream stock and to track my own personal dividend growth stock portfolio. If you want to try it out and follow along, it's available at DividendData.com. The link is in the description and pinned comment of the video. So let's dive right into the news. On September 18th, HES Midstream put out updated guidance following this news from Chevron. And I'll break it all down for you and what it means for investors. So this is updated expectations for 2026 and 2027 based on an expected decrease in back-in rig activity by Chevron from 4 to 3 drilling rigs commencing in the 4th quarter of 2025. And if you don't know, HES Midstream is entirely based in the back-in region, and it is a midstream oil and gas operation, meaning they focus on the transportation of it to various facilities, and then ultimately to rail terminals, and they have gathering pipelines related to the production from these rigs. So they get paid largely based on volumes, and have these long-term minimum volume commitments with inflation escalators. And as we dive into this news, that's part of the reason why I've been buying more of these midstream companies rather than oil producers given this market of low oil prices. It's that low oil price environment which is causing Chevron to reduce drilling. So overall, HES Midstream continues to expect long-term growth in gas throughput volumes through at least 2027 in the back-in, while oil throughput volumes are now expected to plateau in 2026 as a result of lower planned rig activity. Previously, they were expecting growth in 2026. So there is a short-term decline in HES Midstream's financials relative to the guidance they gave out previously. However, HES Midstream expects throughput volumes to generally stay above already established minimum volume commitments. As I mentioned, they have these long-term deals which basically protect the downside of HES Midstream. And I'll dive into that later in the video, but let's keep going through this news. HES Midstream now expects relatively flat adjusted EBITDA in 2026 as compared to 2025. Previously, they were expecting growth in 2026. They go on to say with growth in 2027 from continued growth in gas throughput volumes and inflation escalation provisions under HES Midstream's existing commercial agreements. So this drilling will really decrease oil volumes, but natural gas volumes is expected to continue to grow. So this decrease in drilling will plateau the oil volumes, but over the long-term gas volume is still expected to grow even in the three-rig scenario. And the reason is as rigs become more mature, they actually become more efficient at producing natural gas. They also have these inflation escalators in the agreements which is really just built-in growth for the company. They go on to say that HES Midstream continues to prioritize financial strength and reiterates its long-term leverage target of three times adjusted EBITDA. And this is actually leading in the industry. As an example, MPLX, which I've been buying recently, they target a four times EBITDA ratio. So HES Midstream actually has a far better balance sheet. And since Chevron bought HES Corporation, their sponsor is in a far better financial situation than MPLX. So this news is not coming from a position of financial weakness. To adjust to this lower rig count, HES Midstream now expects significantly lower capital spending in 2026 and 2027 based on the suspension of early engineering activities on the CAPA gas plant and the removal of the project from its forward plan. Now, this is actually very interesting. They are no longer investing in one of the growth projects they were focused on in the coming years. And that frees up all of that CAPEX. Which means that money can be used in other ways, probably to reward shareholders with dividends and share repurchases. They go on to say, With expected continue adjusted EBITDA growth in 2027 and lower capital expenditures in 2026 and 2027, HES Midstream expects continue adjusted free cash flow growth through 2027, supporting its return on capital framework that continues to include a targeted annual distribution per class A share growth of at least 5% through 2027 and financial flexibility for an incremental return on capital, including potential share repurchases. So what this means is that their dividend policy and guidance remains completely unchanged. HES Midstream has had this guidance of at least 5% annual distribution growth for many years now, and that's expected through 2027. And as I showed earlier, they actually beat this guidance every single year. The 5-year kegger is 11%. Over the past year, their dividend has grown 10.3%. And they increase it every single quarter, with the most recent increase being 3.83%. If you're investing in HES Midstream, being it's a high-yield stock, the overwhelming majority of your return will be from the dividend. So the fact that the dividend policy and guidance around the dividend remains unchanged is a great sign. Other news is that HES Midstream updated its full year 2025 gas throughput guidance. They're expected to be on the lower range of that guidance due to adverse weather conditions and maintenance in the third quarter and lower expected third-party volumes in the fourth quarter. HES Midstream does have some customers outside of Chevron, so in the fourth quarter, they're expecting a lower quarter from them. Post the Chevron acquisition of HES Corporation, HES Midstream got new leadership with the CFO of the company becoming the new CEO, and the board now had a bunch of Chevron members on it. So the newer CEO, Jonathan Stein, who has been with the company for a while, he said that HES Midstream's strategy continues to focus on delivering differentiated cash flow stability and balance sheet strength that supports consistent and ongoing return of capital to shareholders. They also said that the next big update for the company will be in December, and that will be based on an updated development plan from Chevron that will include things like financial guidance and 2028 minimum volume commitments. So from the perspective of someone who has been building a position in HES Midstream, and I hope it stays at these lower levels because I think it represents an attractive buying opportunity. The dividend yield is now 8.28%, which is extremely rare for a company with a dividend growth like HES Midstream. And for ATSM stock, this is one of the highest dividend yields in three years, and it is the highest in the past year. The company also has very low downside from here. They have long-term commercial contracts with Chevron. Those contracts extend through 2033, and they will likely continue beyond then. These are 100% fee-based contracts, which minimizes commodity price exposure. And considering the fact I think we're going to be in a low oil price environment for the foreseeable future, this is a positive thing. As you can see, WTI crude oil prices are down 47% from their 2022 highs, and they have fallen an additional 14.5% so far in 2025. And if you've been following US politics and geopolitics, all the policy decisions are basically leading to increased volumes and likely lower oil prices. It's that reason why Chevron is likely reducing their production, as signaled by going from 4 to 3 rigs in the backing region. And by the way, they're not closing it forever. Their assets don't just disappear. They still own it, and they can reactivate it if we get into a higher oil price environment. Chevron's just choosing to be more prudent with their capital allocation strategy, and right now they're not investing more in the backing region. But I think this low oil price environment hurts the producers more than it hurts midstream companies like Hess Midstream. And that's because they have these fee-based contracts, and they're based on volume. And by the way, they have minimum volume commitments, and this is set on a 3-year rolling basis, and their current deal is through 2027. So there's still two and a half more years of this current deal with Chevron. So this really does protect their downside in the scenario where Chevron maybe wants to continue reducing rig count. And by the way, this was their latest investor presentation from I believe July 31st. So this was prior to this news coming out. So we can expect the guidance changes that were mentioned. As an example, we will see a slight decline in gas volume growth. Previously, they were expecting 15% growth, which would have been fantastic. That will be lower, but we will still see growth through 2027. However, oil terminal and growth will likely be much lower. They'll be flat to probably low single digit growth by 2027. And overall EBITDA growth will be slower. But they have stopped construction of the CAFA gas plant, which was going to be a big CapEx investment for the company. So that means their CapEx for 2026 and 2027 will actually be lower than the guidance. So that will offset the lower EBITDA growth, and adjusted free cash flow will probably still grow at a similar rate. So what that means is there's still a lot of room for distribution or dividend increases, which after all is one of the main reasons why we're investing in TestMidstream. As you can see, they've had this 5% targeted dividend per share increase for that was going back to 2021. And every single year they do these additional incremental increases on top of it. That was 5% in 2021, 6% in 2022, 5% in 2023, 3% in 2024. And so far in 2025, they've already done 5%, and that's on two quarters. So I would expect them to continue growing that dividend above 5% and at a minimum 5%. And given the lower CapEx, I would still say we're in store for share repurchases. So in today's market, I think TestMidstream is a pretty attractive risk reward, especially if you're a dividend focused investor. Just as an example, I'm going to be using the dividend discount model calculator here I have on DividendData.com. I'll put the link in the description and pinned comment. And this is a very conservative measure of valuing a stock. It's similar to discounted cash flow, but it only values it based on the dividends a company will pay you. So we put in the current share price, the current annual dividend, the expected annual dividend growth rate, how many years you want to simulate out. By default, we'll put it at 50. And the discount rate, which is your expected annual return. So kind of the baseline you're trying to beat. We'll put that at 10% for this example. That's about what the S&P 500 does on average. And if we expect only 5% annual dividend increases, then that gives the company a present value of $55.90, which means the stock is 36% undervalued. And if we up that to 7%, that makes the stock 54% undervalued. Although that is a slightly higher percent to project over such a long time period, it is more reasonable for an example like 25 years. In that case, it's 32% undervalued. And it is nearly 10% undervalued if we increase the discount rate to 13% annual returns. So overall, this looks like a very reasonable risk reward in today's market. And that's why I've been buying more Hess Midstream stock, and I'm hoping it stays low because I'll continue to buy more and more. Oh, and by the way, this is from a perspective of someone who's a dividend growth investor, and I'm focused on this company from the fundamentals. But there's also another investment case for buying HESM stock, which is one part of the And I don't want that because I think the company will do well long term. And purely from a dividend standpoint, I think this will be a crusher of an investment. But you could get a short-term price return if Chevron buys the company. And I'll put this as a little conspiracy theory or speculation. If Chevron was going to do that, it might make sense to decrease the value of Hess Midstream. And one of the levers that Chevron has to do that would be to decrease the rig count from 4 to 3, which could cause the market to start valuing Hess Midstream stock less. As an example, we're down nearly 10% from the news. So if I was a conspiracy man and John D. Rockefeller was running Chevron, that option of an acquisition could still be in play. But personally, I don't want that because I want to own this stock over the long term. But you shouldn't listen to me. You should do your own research before making any investing decisions. That's why I build DividendData.com with all of these investment tools to help you do your own research. The link is in the description and pinned comment of the video. If you found value, leave a like, comment, and subscribe to the channel for more content. And I'll see you in the next one. Thanks for watching.