🚨 My Top Stock Buy Right Now - $268,000 Dividend Investing Update

Over the past month, I just made one of the largest changes ever in my dividend growth stock portfolio. I rebalanced the account and added a good chunk of new money to make Hess Midstream, ticker symbol HESM, my second largest position. This comes on the backdrop of the stock falling 18.7% over the past month and down 24% from its July high. Hess Midstream now trades at a forward-looking dividend yield of 8.9% for a company that's been growing its dividend payments every single quarter. HESM is now trading at its highest dividend yield of the past three years, and I've been using this as an opportunity to load the boat. If you've been following the channel, you know I've been researching HESM for probably four or five months at this point, and I think I have a pretty good grasp on the business, the economics of it, the potential downside, the risks, and the upside from here. The current total value of my portfolio is just over $268,000. I chose a bad day to show you guys as the market's dropping today. Recently, it's been more in the low 270s, and if we look at this account, this is my dividend growth stock portfolio. I do have two other accounts, but in each of them, I follow a pretty concentrated approach. I only have seven holdings in this account, and if we look at the diversification of that, it's highly concentrated in my top names. As an example, we have Microsoft at 22%, now HESM Midstream at 20.8%, Visa at 15.7%, Altria at 14.2%, and Alphabet, the parent company of Google, at 14.2%. And by the way, these portfolio moves have actually now doubled my dividend income. My current projected annual dividend income is $10,043. That's now $2,510 a quarter, an average of $836 a month, $27.52 a day, and $1.15 an hour. I finally eclipsed that dollar an hour mark. And if we look at this, the upcoming month of November is going to now be my largest dividend month by far. And that's because that's when my midstream oil and gas stocks pay. That will now be at least $1,515, and the majority of that is coming from HESM Midstream. But it will actually likely be more, as I'll probably keep adding, and there will likely be dividend raises for HESM Midstream and MPLX by the time it gets to this next one. And just to add some context for you longer term viewers, this month of November used to be my lowest month by far. If we go and look at my dividend history, that same month of the dividend cycle was only paying me $86 in dividends. And that's now become my largest by far, and that's only going to snowball over time. So let's take a deep dive into this major move in my portfolio that's going to include an analysis of HESM Midstream's stock, but it's also going to explain some of the logic behind how I think about diversification and how to manage your money when you only have small sums and you are actively involved in the investing process, researching companies constantly. And to do that, I'm going to be relying on the wisdom of some of the greatest investors of all time, Warren Buffett and Charlie Munger. You may be surprised to learn that Warren and Charlie are actually not big fans of diversification, at least for those who consider themselves professionals. And this is somewhat of a controversial take, and it's definitely not what they advise to the average person or the passive investor, but I think it's actually a very important thing to understand. And if you don't believe me, Charlie will tell you hundreds of times if you go listen. He is not comfortable with positions becoming a large part of his portfolio, for example, when they reach 25 to 35 percent. I think he's out of his mind. Yeah, I knew that was coming. That is an insane idea. What I call diversification of portfolios. Diversification is for the know-nothing investor. It's not for the professional. They've got it exactly back ass work. The whole secret of investment is to find places where it's safe and wise to non-diversify. It's controversial. It's definitely not the right approach for everyone. With that said, I'm going to dive into this month's portfolio update and let's roll the intro. The following reflects the opinions of a man who spends far too much time thinking about stocks. Please do your own research before making any investment decisions. Nothing in this video is personal financial advice. Continue at your own risk. My name is Zach. This is Dividend Data, and you should leave a like and subscribe to the channel if you enjoy the video. I'm sorry I haven't been uploading much in recent weeks, but I think you guys should practice some delayed gratification here. I've been hard at work building Secret Project One, and this is going to be the biggest update ever to DividendData.com. I'll be sharing that with you guys sometimes towards the end of October, and I don't want to spoil anything, but you should get excited. If you want to follow along with the tools I use throughout the video, it's all available at DividendData.com. The link is in the description and pinned comment of the video. All right, so we're back in my DividendGrowth stock portfolio, and I'm going to give a full breakdown of exactly what transactions I made in a month. So I bought 1,409 shares of HESM at a cost per share of $34.58. So if you're wondering, it's currently below that price right now. I bought in multiple tranches as it was at these lower levels. And by the way, I'll continue to add new money and possibly rebalance if it stays at these low levels for a prolonged period of time. Or goes lower, of course. So that was a total cost of $48,716. The current annual dividend for HESM is $2.95, so that makes my yield on cost 8.53%. This grew my annual dividend income by $4,156. Also, since my last portfolio update, this was at the beginning of the month before HESM sold off, I bought 7 shares of MPLX. That was the other midstream oil and gas stock I've been covering. That was at a cost per share of $49.95. It's actually below that price, but I have been prioritizing HESM since it sold off so much more. Current annual dividend, $3.83, 7.67% yield, $26 increase to my annual dividend income. And if you're wondering, a little over $7,000 of that was from new money added to the account. But I also sold to rebalance in this account. And I want to be clear and emphasize right now, I'm not selling these companies because I think they're bad. In fact, some of them I think are good buys right now. As an example, Salesforce, I was just buying that recently. All of this rebalancing comes down to the principle of opportunity cost, which I'll discuss later when I play that Warren Buffett and Charlie Munker club. So as a part of this rebalancing, I sold out entirely of Salesforce. That was $18.1K. And one of the main reasons why I sold this position is that I was down on it. So I was actually able to take the losses from that and it allowed me to offset the gains from some of the other things I was going to sell. So actually selling all of these stocks had a very minimal tax impact. I also sold two of my smaller energy stocks. That's EPD, which I've held since 2021. That was about $4,500 worth. And the reason why I sold is I actually think HESM is a better business at a better value that will grow higher. And EPD was actually trading on a much higher valuation. And frankly, I also understand EPD's business less. In these past four to five months, I have really gained an understanding of HESM's business. And I really never did that deep of a dive into EPD. And I had great returns on the stock. I think it was like a 160% total return or something. But I bought this in late 2020, early 2021. And it wasn't really even like a core buy at the time. That's why it was such a small dollar amount. And the other one was a new position I was building up this year, Texas Pacific Land Corporation, ticker symbol TPL. I still think this is an awesome business. I will eventually do a stock review video for this. No promises for timetable on that, by the way. And I was starting to build up a position here. But in my opinion, I didn't think it was a screaming buy at these prices. And it actually does not match my current investment thesis in the energy sector. TPL has this great royalty model based on the oil and gas produced on their land. But in my view, I think we'll stay in a low oil price environment for the foreseeable years. And the profits of those oil producers and even the better business model royalty oil producers, they still are heavily dependent on oil prices. And frankly, the stock prices on these oil producers has not fallen that much. I want to buy these kinds of businesses when we're in a deeply bearish sentiment. And I actually don't think we're there yet. Now you might say, Zach, you're buying an energy stock. Yes, but as I'll break down later in the video, they have a very unique business model that completely shields them from these commodity prices. On top of that, I also did a partial sale of my position in Visa. This was my second largest one in the account. And that was 35 shares at a cost per share of $351.47. And again, I still like Visa. It's a great company and I'm still planning on it being a core position of mine. But as I was looking at my account and my percent allocation to various things, I thought I was actually too over indexed in Visa, especially at a time where I would like to be allocating as much money as I can reasonably to Hess Midstream. And this comes down to the idea of opportunity cost I was talking about earlier. So let's get into that Warren Buffett, Charlie Munger segment. And then after that, I'll come back and give my analysis in Hess Midstream, why I'm buying it right now, and really just what I think about the investment. With that said, let's play the clip. The question is about diversification. And I've got a dual answer to that. If you are not a professional investor, if your goal is not to manage money in such a way as to get a significantly better return than the world, then I believe in extreme diversification. So I believe 98 or 99%, maybe more than 99% of people who invest should extensively diversify and not trade. So that leads them to an index fund type of decision with very low cost. Because all they're going to do is own a part of America. And they made a decision that owning a part of America is worthwhile. I don't quarrel with that at all. That is the way they should approach it, unless they want to bring an intensity to the game to make a decision and start evaluating businesses. But once you're in the business of evaluating businesses, and you decide that you're going to bring the effort and intensity and time involved to get that job done, then I think that diversification is a terrible mistake to any degree. And I got asked that question when I was at SunTrust the other day. And if you really know businesses, you probably shouldn't own more than six of them. I mean, if you can identify six wonderful businesses, that is all the diversification you need. And you're gonna make a lot of money. And I will guarantee you that going into a seventh one is going to, rather than putting more money in your first one, it's got to be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people got rich on their best idea. So I would say that for anybody working with normal capital who really knows the businesses they've gone into, a sixth is plenty. And I'd probably have half of it in what I liked best. I don't diversify, personally. I mean, and all the people I know that have done well, with the exception of what we mentioned, Walter Schlosser, Walter diversifies a lot. He owns a little of everything. I call him Noah. He's got two of everything. Big opportunities in life have to be seized. We don't do very many things, but when we get the chance to do something that's right and big, we've got to do it. And even to do it in a small scale is just as big a mistake almost as not doing it at all. I mean, you've really got to grapple when they come, because you're not going to get 500 great opportunities. You would be better off if when you got out of school here, you got a punch card with 20 punches on it. And every big financial, every financial decision you made, you used up a punch. You'd get very rich because you'd think through very hard each one. I mean, you went to a cocktail party and somebody talked about a company. He didn't even understand what they did or couldn't pronounce the name, but they'd made some money last weekend and another one like it. You wouldn't buy it if you only had 20 punches on that card. There's a temptation to dabble, particularly during bull markets. In stocks, it's so easy. It's easier now than ever because you can do it online. Just click it in and maybe it goes up a point and get excited about that. And you buy another one the next day and so on. You can't make any money over time doing that. But if you had a punch card with only 20 punches, you weren't going to get another one the rest of your life. You would think a long time before every investment decision. And you would make good ones and you'd make big ones. And you probably wouldn't even use all 20 punches in your lifetime, but you wouldn't need to. I'm Isaac Dimitrovsky from New York City. Mr. Buffett, it's great to be here. I've read that there were several times in your investing career when you were confident enough in one idea to put a lot of your money into it, say 25% or more. I believe a couple of those cases were American Express and the Washington Post in the 70s. And I've heard you discuss your thinking on those. But could you talk about any of the other times you've been confident enough to make such a big investment and what your thinking was in those cases? Charlie and I have been confident enough. If we were only running our own net worth, I'm certain a very significant number of times, if you go over 50 years, there have been a lot of times when you had to put at least 75% of your net worth into an idea. Well, but 75% of your worth outside Berkshire has never been a very significant amount. Well, but I'm going back. Let's just assume it was. Let's just assume you didn't have Berkshire in the picture. There have been times, I mean, we've seen all kinds of ideas we would have put 75% of our net worth in. Warren, there have been times in my life when I've had more than 100% of my net worth invested in things. That's because you had a friendly banker. There have been times, well, initially I had several times I had 75% of my net worth in one situation. There are situations you will see over a long period of time. I mean, you will see things that it would be a mistake if you're working with smaller sums. It would be a mistake not to have half your net worth in. I mean, you really do sometimes in security see things that are like pipe cinches and you're not going to see them often and they're not going to be talking about them on television or anything of the sort, but there will be some extraordinary things happen in a lifetime where you can put 75% of your net worth or something like that in a given situation. The problem has been the guys that have put 500% of their net worth in. I mean, if you look at, just take LTCM, very smart guys, very decent guys, some friends of mine, high grade, knew their business, but they put maybe 25 times their net worth into things that were a cinch if they hadn't have gone in that heavily. I mean, they were in things that had to converge, but they didn't get to play out the hand. But if they'd had 100% of their net worth in them, it would have worked out fine. They'd had 200% of their net worth and it would have worked out fine, but they instead went to maybe 2,500% or something like that. So there are stocks. I mean, actually, there's quite a few people in this room that have close to 100% of their net worth in Berkshire and some of them have had it for 40 more years. Berkshire was not in the cinch category. It was in the strong probability category, I think. But I saw things in 2002 in the junk bond field. I saw things in the equity markets. If you could have bought Cap Cities with Tom Murphy running it in the early, in 1974, it was selling at a third or a fourth what the property is worth and you had the best manager in the world running the place and you had a business that was pretty damn good even if the manager wasn't. You could have put 100% of your net worth in there and not worried. You could have put 100% of your net worth in Coca-Cola earlier than when we bought it, but certainly around the time we bought it. And that would not have been a dangerous position. Be far more dangerous to do a whole bunch of other things that brokers were recommending to people. The students of America go to these elite business schools and law schools and they learn corporate finance the way it's now taught and investment management is the way it's now taught. And some of these people write articles in the newspaper and other places and they say, whole secret of investment is diversification. That's the mantra. They've got it exactly back ass word. The whole secret of investment is to find places where it's safe and wise to non-diversify. It's just that simple. Diversification is for the know-nothing investor. It's not for the professional. And there's nothing wrong with the know-nothing investor practicing it. It's exactly what they should practice. It's exactly what a good professional investor should not practice. But there's no contradiction in that. A know-nothing investor will get decent results as long as they know they're a know-nothing investor, diversify as to time they purchase their equities and as to the equities they purchase. That's crazy for somebody that really knows what they're doing. And you will find opportunities that if you put 20% of your net worth in it, you have wasted the opportunity of a lifetime, you know, in terms of not really loading up. And we've had the chance to do that way, way in our past. When we were working with small sums of money, we'll never get a chance to do that working with the kinds of money that Berkshire does. We try to load up on things. And there will be markets when we get a chance to from time to time. But very seldom do we get to buy as much of any good idea as we would like to. We think diversification, as practiced generally, makes very little sense for anyone that knows what they're doing. Diversification is a protection against ignorance. I mean, if you want to make sure that nothing bad happens to you relative to the market, you own everything. There's nothing wrong with that. I mean, that is a perfectly sound approach for somebody who does not feel they know how to analyze businesses. If you know how to analyze businesses and value businesses, it's crazy to own 50 stocks or 40 stocks or 30 stocks, probably, because there aren't that many wonderful businesses that are understandable to a single human being in all likelihood. And to have some super wonderful business and then putting money in number 30 or 35 on your list of attractiveness and forego putting more money into number one just strikes Charlie and me as madness. And it's conventional practice. And if all you have to achieve is average, it may preserve your job. But it's a confession, in our view, that you don't really understand the businesses that you own. On a personal portfolio basis, I own one stock, but it's a business I know. And it leaves me very comfortable. So do I need to own 28 stocks in order to have proper diversification? Be nonsense. And within Berkshire, I could pick out three of our businesses, and I would be very happy if they were the only businesses we owned and I had all my money in Berkshire. Now, I love the fact that we can find more than that and that we keep adding to it. But three wonderful businesses is more than you need in this life to do very well. And the average person isn't going to run into that. I mean, if you look at how the fortunes were built in this country, they weren't built out of a portfolio of 50 companies. They were built by someone who identified with a wonderful business. Coca-Cola is a great example. A lot of fortunes have been built on that. And there aren't 50 Coca-Colas. There aren't 20. If there were, it'd be fine. We could all go out and diversify like crazy among that group and get results that would be equal to owning the really wonderful one. But you're not going to find it. There is less risk in owning three easy-to-identify wonderful businesses than there is in owning 50 well-known big businesses. And it's amazing what has been taught over the years in finance classes about that. But I can assure you that I would rather pick, if I had to bet the next 30 years on the fortunes of my family that would be dependent upon the income from a given group of businesses, I would rather pick three businesses from those we own than own a diversified group of 50. So I want to preface this. This is not financial advice. I'm just sharing what I choose to do with my investments. I think that's why you guys follow along. You like to just get my perspective on things. You should not just copy what I'm doing. And also for some background, I basically do this for a living. I've been publicly researching stocks for over five years on this YouTube channel. I do it for a lot of my free time. I'm kind of obsessed with investing in business in general. And I built this entire stock research platform called DividendData.com, which is my main business. So I'm not the typical person in general. And this is what Warren Buffett even advises for the average person. The average person should probably just dollar cost average into index funds, buy and hold for life. And if you choose to learn, get more into analyzing stocks and various businesses, then you can pick a few companies. And even then you should probably have a large chunk of index funds as well. And in general, buy and hold is a great rule of thumb for investing because all of the returns come from long-term compounding. And time is the most important factor in that. And Warren Buffett's entire life is basically a case study in the power of compounding. He has been investing since a very young age and has continued reinvesting all of his capital over time. And as it became Berkshire Hathaway, reinvesting all of that capital. And it's been a great investment track record. And you need to buy great businesses and But that does not mean you need to own the same companies the entire time. Warren Buffett's portfolio has shifted massively over time. And especially when he was working with smaller dollar amounts, not hundreds of billions of dollars, he was very willing to concentrate and focus on investing in his best ideas. And those change over time and can change based on the reality of the actual businesses you're investing in or how the market values them at any time. Now, as Warren Buffett got older and Berkshire Hathaway became so massive, he did follow much more of a buy and hold forever approach. But really, that's just what they're fully owned private businesses like the BNSF Railroad, See's Candy, Geico, etc. From the public stocks they own, he's much more willing to rebalance. Even today, he sold some of his Apple stock, which he long called a crown jewel of his account. And again, to be fair, he does have some very long-term holdings in that account. He's owned Coca-Cola for well over 30 years, and also American Express for a very long time. So again, the reality of things, there's a lot of nuance. Buy and hold's a great rule of thumb, but that doesn't mean you can't rebalance or choose to sell a stock. Ultimately, we're just talking about a pile of money here. And the whole idea is to get that pile of money compounding in the future. And when you have money allocated to one thing over another thing, that by its very nature is a choice. There is an opportunity cost associated with picking one investment over another. There are companies you want to own for a very long time. I have core positions like Microsoft. I bought a bunch of that in 2022. I should have concentrated even more back then, even though I tried to. You're always learning from this kind of stuff. Earlier in 2025, Alphabet was another one of those ones I was buying. I'm should have concentrated even more at that time. Altria, I bought a ton at a 9% dividend yield, trading at a very low valuation. I have a 91% total return on that. Should have gone even heavier. ExxonMobil, you know I bought this during the lows of 2020 when oil prices were extremely low. 244% total return on that one. And I consider some of these to be long-term buy and hold investments. I've been holding them for many years. And in my other accounts, I have stocks that I've been invested in, never sold them, only added to them over time. And some of them go back to 2016. But with that said, opportunity cost is real. And just to do a little thought experiment, Microsoft, one of my favorite holdings, I think it will do great over time. I don't want to sell this company. I want to hold it for many, many years to come. But if tomorrow we wake up, and Apple stock is trading at $1 a share, and the company's trading at a 104% dividend yield, where their annual free cash flow per share would be 7 times the stock price, and the business was exactly the same, and you understood it, the obvious thing, even though you want to buy and hold these stocks, the obvious thing is that that is the superior opportunity, and you should concentrate and put as much money as you can in that opportunity. And of course, you want to adjust for risk, and to a point that can even be somewhat subjective. Everyone has different emotional levels of risk they're willing to take. But when you're thinking about investing in businesses, this idea of opportunity cost is really something you should consider. And by the way, I am not perfect. I will likely make continuous mistakes around this in times where maybe I went too heavy in a thing that wasn't that great, or which in my experience has been the bigger mistake when I identify something that I think is a good opportunity or great opportunity, and I don't go heavy enough into it. In my short and young investing career so far, that has cost me hundreds of thousands of dollars. All right, so I hope you liked my little investing church session we had there. Now let's dive into HESM and why I'm buying the company. All right, so HESM industry, this is a company with a market cap just under $7 billion. The current dividend yield is 8.9%. It's trading at 12 times net income, which is actually a little misleading in my opinion, because if you look at EBITDA, operating cash flow, and free cash flow, it's trading at a much lower multiple than that. This company has a growing dividend payment, five-year compound annual growth rate of the dividend is 11%. They increase it every single quarter. The most recent dividend increase is 3.83%. We're talking about the highest dividend yield of the past three years. And during that time period, despite it being at a massive sell off right now, there's still a 58.8% total return over those three years. That's a 16.7% compound annual growth rate. And with these high dividend payers, a large part of your return comes from the reinvesting of dividends. And to add some more financial context here, this is a company trading now under $7 billion in market cap. So that's what the company is valued at. If you were to theoretically buy the entire thing based on today's share price. Over the trailing 12 months, this company has generated $1.9 billion of EBITDA. And in midstream oil and gas companies, this is usually used as the key financial metric. Sometimes EBITDA can be a little funny, so I'll share some other ones we can take a look at as well. But the company is trading just under six times EBITDA, and the dividend is extremely well covered by that. This has also been growing at a pretty high rate in recent years, although it will slow down in 2025 due to some news that we will soon discuss. Operating cash flow over the trailing 12 months, $960 billion. So this is how much money they're bringing into the business before capital expenditures. And this is an infrastructure business, so there usually is CapEx, but it's actually far less than many of its peers. A lot of the infrastructure is already built out for HESM, and they're more in the cash harvesting phase right now. So based on operating cash flow, the company is trading at about 7.3 times. And that's been growing at a slow, reliable rate over the past three years or so. And over the past five years, it's nearly doubled. Free cash flow over the trailing 12 months is $666.4 million. And that's stayed relatively flat as they've increased CapEx in the recent years. But there are some things changing around that, which I will soon cover. So this means that HESM is trading at about 10.5 times free cash flow right now. And if you're wondering, the dividend is very well covered from this. So that's the financial picture of HESM midstream right now. But there's been some big news surrounding the company, which really has caused the sell-off. And ironically, it's kind of the same news that caused the stock to go up and nearly hit a new high in July. And that has to do with the acquisition of HES Corporation by Chevron. HES Corporation was the oil producer that was the main sponsor of HES midstream. So HES midstream had pipelines and various transportation assets to serve the production assets of HES Corporation. And those are now owned by Chevron. And if you're wondering, this is all located in the Bakken. They have crude oil and natural gas gathering pipelines. They also have water gathering pipelines. And they bring this to their various gas or oil processing facilities, some of which they own, some they have economic interest in. They have these processing and storage facilities. And then ultimately, they help bring this to market through terminaling and export. That can be things like connecting it to a larger oil pipeline. As an example, the Tioga Rail Terminal. I don't know if I said that right. That has a direct connection to the BNS Hef Railroad. And basically, this all connects so that they can transport their natural gas or oil all the way across the country. And one of the things I like about HES midstream is they actually have a larger natural gas business than crude oil. And that's set to continue growing well into the future. So hopefully that helps you understand their assets. But there was some big news around Chevron acquisition. We're starting to get glimpses of what Chevron's plans are with production in this Bakken area with their HES acquired assets. On September 18th, we got an update that for 2026 and 2027, there's an expected decrease in rig activity by Chevron from four to three drilling rigs commencing in the fourth quarter of 2025. And this has been the main factor sending the stock down. And it does make sense actually to an extent. Less rigs likely means less production. So less to be transported by HES midstream. But there are core things to understand about HES midstream's business that shields and protects them from the downside. But before that, let's go through the rest of the guidance they gave from this news. It said they continue to expect long term growth in natural gas volumes through at least 2027 in the Bakken. However, oil throughput volumes are now expected to plateau in 2026 as a result of lower planned rig activity. And by the way, this wouldn't be the first time that has happened to HES midstream. We'll go back and play through what happened in 2020 later in the video. So let's repeat, they're still expecting natural gas volumes to grow through at least 2027. And that's the larger business segment. While they expect oil to plateau, not necessarily decline, just not grow, plateau. And this is one of the things I teased earlier. They expect throughput volumes to generally stay above already established minimum volume commitments. And this is what I was talking about with downside production. And I'll go into more detail with that. They have these long term contracts and minimum volume commitments that basically shield the business. Now, previously, they were forecasting pretty good EBITDA growth. However, that has slightly changed now. They're expecting relatively flat adjusted EBITDA in 2026 as compared to 2025, with growth in 2027 from continued growth in gas throughput volumes and the inflation escalation provisions under HES midstream's existing commercial agreements. This is one of the other things I like about their contracts. They have inflation escalators that basically continue to increase the rates. HES midstream continues to prioritize financial strength and reiterates its long term leverage target of three times adjusted EBITDA. But now this is where it gets kind of interesting. 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 interesting. You could make the argument that perhaps this will hurt their long term growth because they're not investing as much in the future. But also that future is being reshaped so that can match Chevron's plan in the region. And given these lower oil prices, they might want to focus on just trying to be as profitable as possible. So that significantly lower capex may mean that in 2026 and 2027, HES midstream will actually have higher free cash flow than they would have in the other scenario. And they kind of tease that. They say with expected continued adjusted EBITDA growth in 2027 and lower capital expenditures in 2026 and 2027, HES midstream expects continued adjusted free cash flow growth through 2027, supporting its return of capital framework that it continues to include a targeted annual distribution per class A share growth of at least 5% through 2027. And I'll dive into that. They've been saying at least 5% dividend growth, and they've had that guidance for a while now at this point, and they continue to beat it. They also said it will support financial flexibility for incremental return of capital, including potential share repurchases. Yes, HES midstream even repurchases shares sometimes. The other big thing I want to mention here is that Chevron's basically going to be having a big annual meeting type thing. And they're going to give an updated development plan post the HES acquisition, and that will include their plan in the Bakken region. And that's really the biggest piece of uncertainty right here. And there's a wide range of things that analysts are saying Chevron will do. And that plan will impact basically the capital spending for HES midstream, and it will dictate their operational and financial guidance, including things like their 2028 minimum volume commitments. And while I'm on that, let's just dive into it right now. There basically are two extreme positions analysts have. On one side, they think that Chevron's going to acquire HES midstream as well. On the other side, they think that Chevron might divest all of their production assets in the Bakken region, and likely look to exit their HES midstream position as well, because they now own 38% of that post the HES acquisition. And in Chevron's latest earnings call, they were asked kind of about this. So I'll play a clip and give my perspective then after. I have a very specific question. Actually, it's a follow up to Steve's question on the Bakken. HES was kind enough to report their U.S. business separate from international. And even with the synergies, the U.S. business under their reporting would still be free cash flow negative. And the reason for it, of course, is they pay out significant dividends or Paris rather to HESM. The question is, is this a core business for Chevron? Because a few years ago, they talked about a 10-year inventory. Today, it's probably a five-year inventory, but it is free cash flow negative. So in the context of what you're prioritizing, what is the role of the Bakken specifically in your portfolio? Yeah, I'll let Mark talk about that. Thanks for the question, Doug. Listen, stepping back, I would say we're excited to add the position in North Dakota to our shale and tight portfolio, as Mike mentioned. Our view is today it generates a solid cash flow when you look at the entity in total. And we've learned from our experience integrating Noble and PDC, the team to step back and look at both the talent and the assets that we're acquiring here. And we've come to know the HES team very well. They do some things very well in the Bakken. And we've obviously got our own capabilities that are unconventional. So we look forward to bringing those together. We haven't made any long-term development plans just yet, but we'll talk about that more in our investor day. I think your comment is linked to HES midstream. And obviously, that is a bit of a unique financing structure. And my personal belief is that that can be more efficient. It's different than some other midstream elements that we have divested of. It's different in its size and its structure. And obviously, it's logistic linkage to the Bakken. We'll be value-driven in regard to how we handle that over time. And we can talk about that more in our investor day in November. So that investor day really actually will be kind of important. I'll be listening to it. And my takeaway from what he said right there is I think that divesting from it is not likely to happen. I would say very low probability. Part of that's also due to the long-term contracts that HES midstream has through 2033 and the minimum volume commitments. So they would have to find some kind of willing buyer that wants to take over these assets. They can't really just shut them down. I think another key point there was on the call when they said you have to look at it in its entirety when talking about the production having negative free cash flow. Because the reality is that Chevron is the largest owner of HES midstream. And they benefit from the distributions that HES will pay them. So it's really not like a zero-sum, one person loses, one person wins. The other key point is that they talked about bringing operational expertise to help them. And I think that means that they're going to work on lowering production costs in the region, making things more efficient. That's probably why they're going from four to three rigs. They're trying to focus on efficiencies. And also we're in a lower oil price environment. So it kind of makes sense to be more efficient at this time. And you don't want to overproduce. But that development plan will be important. And I do kind of think that his comments also led it open to an acquisition potentially, which could be good for short-term returns for HES midstream investors. But personally, I don't want that. I actually kind of like this business and I would like it to continue to exist independently. And I want to keep building my position in it. So in my opinion, the biggest downside of investing in HES midstream would be that they get acquired and I have some like 20% gain or something rather than 15% annually for a prolonged period of time. So that's kind of the news of what's going on with Chevron. We'll have more details probably this quarter and definitely by the investor day. Another way you could think of this is that this uncertainty is providing opportunity for investors. And let's dive a little bit more into HES midstream business. They have long-term commercial contracts extending through 2033 and it's 100% fee-based contracts based on volume to minimize commodity price exposure, which is awesome considering that I'm expecting a low oil price environment. They have minimum volume commitments. They call these MVCs. They're set on a three-year rolling basis and the current one's set through 2027 and that provides downside risk and it worked really well during 2020. I'll go back and look through the worst case scenario of what can happen at HES midstream. There are some things that are different now. As an example, EBITDA growth in 2025 will be lower than previously said, but free cash flow guidance could be pretty similar. They reaffirmed their guidance for dividend growth. It's at least 5% annual dividend growth and they're expecting that through at least 2027. And this is very well covered by the cash flow of the business. Since 2021, they've increased their dividend or distribution per share by 63%. And during that entire time, they had a target of 5%, but they raised it higher than that every single year. As an example, 5% over here, 6% over here, 5% over here, 3% over here, and they're already over 5% this year. And they increased the payment every single quarter, at least so far. On top of that, they're constantly repurchasing shares. So this whole return on capital framework, that's going to continue. And previously they were forecasting pretty good growth in EBITDA and high growth in adjusted free cash flow, which was going to happen from greater than 15% annual EBITDA growth and keeping CAPEX stable. That was going to lead to greater than 15% free cash flow growth. However, EBITDA growth is now going to be lower. CAPEX is going to go down significantly, they said. So we might still get greater than 15% free cash flow growth. Gas volumes are going to continue to grow. And they're saying through at least 2027. In my opinion, it will grow beyond that. Now they're expecting plateau in oil terminaling. The oil market's always subject to change based on the price environment. Every look at the revenue, 85% is from the fixed fees. And there's a base fee, which is escalated by the consumer price index every year. So that means if we're in a high oil price environment, the upside goes to the producer. If we're in a low oil price environment, the downside will then go to the producer. And Hess Midstream gets to be pretty steady at it along the way. 15% of the revenues is cost of service. And here you can see their track record of EBITDA growth. It's at a 20% compound annual growth rate over the past decade. All right, so before I get to my price targets and valuation metrics for Hess Midstream, there's a few other big questions that I get a lot. One is looking at the share count for Hess Midstream. They want to know why this is going up. And I was very confused by this as I was looking at it, especially when you consider that they're repurchasing shares. And I'm going to be honest, I partially understand it now, but it's due to the really weird corporate structure that Hess Midstream has. Originally, it was this limited partnership and they had these sponsors. It's a very confusing diagram. But basically, as it was explained to me, these repurchases are Hess Midstream buying ownership for the class A shareholders of the company from the sponsors, at least historically. So what they say is that the public shareholders actually own a higher percentage of the company now. So again, this is just from doing my research with AI and everything. I'll be honest, I still find it slightly confusing. Then the other big question is around these two letters right here, LP. That means limited partnership. And at one point, Hess Midstream was a master limited partnership, which would mean you need a K1 for your taxes. However, they have since transitioned into being a regular 1099 div company, which means for tax purposes, it's treated the same as all your other dividend stocks, which is actually extremely unique for midstream oil and gas partnerships. The third question that's often shared is around this, the earnings per share payout ratio. And people look at this and they go, oh, the payout ratio is unsustainable. How can they keep it up? But really, there's a lot of scenarios where that's just not true. You always want to be looking towards the free cash flow, the operating cash flow, and for cases like this, even EBITDA sometimes, net incomes based on gap accounting. And for a business like Hess Midstream, it's simply just not reflective of the actual earning power of the business. And that is the default metric used per payout ratio on basically every website. So people see 105% and they're like, huh, no. But if you use a tool like dividenddata.com, you can get a full picture look at the company and see that the free cash flow payout ratio for last year was 37%. And also, if you're skipping around and not watching the whole video, which I don't recommend you do, scroll back and watch my whole breakdown of the guidance around the dividend and dividend growth. Newsflash, the dividend's not a risk. And finally, to wrap up this video, let's do price targets for Hess Midstream stock. Let's do some valuation methods. We'll use dividend discount model, which is a very conservative approach to valuing a stock. And then we'll do discounted cash flow analysis as well for the company. All right, so if we look at price targets, the current lowest price target on Wall Street is $36 a share. That is still well above the current stock price. The consensus price target is $41.50, which implies 26.6% upside from here. And using the AI analyst on dividenddata.com, I used that to help me do the dividend discount model and discounted cash flow. So for dividend discount model, I gave it the forward-looking annual dividend, and then I gave it different scenarios. I said, assume a 5% annual dividend increase, 7%, and 10%, and then also do it with a 10%, 13%, and 15% discount rate. So this kind of gives us a range of scenarios. And if you're wondering what discount rate is, you can think of that as your expected annual return you're like weighing the results against. In some cases, people use the risk-free rate of return, but I like to value it kind of towards the expected annual return you would get from something like the S&P 500. And this is a very conservative approach to valuation because it only values it based on the dividends the company pays you. And even in that scenario, with the base case of 5% dividend growth at a 10% discount rate, that gives it an estimated share price of $61.95. That's incredibly undervalued. At 13%, that goes to $38.72. At 15%, that goes to $30.98. With a 7% growth rate that goes to $105.22, $52.61, $39.46 at 15% discount rate. So if we have 7% dividend growth, even assuming a 15% discount rate, the stock is significantly undervalued. And with 10% dividend growth, a 15% discount rate would value the stock at $64.90, which is very undervalued at today's $33 share price. And finally, the other valuation metric I'm going to be using is the discount cash flow analysis. You can do this for any stock in the Dividend Data AI Analyst. Just type the ticker symbol and DCF valuation. Scroll down and you can hit show more. And you can edit this entire calculator to fit whatever calculation you want. By default, the implied share price is $43.23, which implies over 25% upside from today's price. And that's assuming 0% revenue growth in 2028, 2029. So that's why I'm buying HESM stock. And this is the current updated look at my dividend growth stock portfolio. If you enjoyed the video, make sure to leave a like, comment, and subscribe to the channel for future portfolio updates. And again, you should do your own research before making any investing decisions. With that said, thanks for watching, and I'll see you in the next one.