Some of the largest US and Canadian midstream companies are guiding to robust annual dividend growth in 2020. After growing its dividend by 25% in 2019, Kinder Morgan (KMI) is planning another 25% increase in 2020, which would bring its dividend up to $1.25 per share on an annualized basis. The outsized dividend growth marks a recovery from KMI’s 2015 dividend cut. In 1Q19, Plains All American (PAA) announced a 20% distribution increase in conjunction with the conclusion of its deleveraging plan after cutting its distribution twice in the past. PAA is targeting approximately 5% annual distribution growth going forward. Turning to Canada, TC Energy (TRP) has reaffirmed expected dividend growth of 8-10% for each calendar year through 2021 and 5-7% growth thereafter, which is consistent with its historical long-term average. Similarly, at its Investor Conference in December, Enbridge (ENB) guided to 9.8% dividend growth in 2020.
Growing dividends without guidance.
Many midstream companies have not provided guidance for 2020 dividend growth but raised their payout with their latest dividend announcement. For these companies, the table below compares their 4Q19 dividend with 4Q18 to give an indication of growth levels. Notably, the two names with double-digit percentage growth – BP Midstream (BPMP) and Shell Midstream (SHLX) – are MLPs with incentive distribution rights in their structure. Most names achieved more modest year-over-year growth in the mid-to-low single digits. Notably, Crestwood Equity Partners (CEQP) increased its 4Q19 distribution by 4.2% sequentially after keeping its distribution flat at $0.60/unit following a cut in April 2016. Separately, Pembina Pipeline (PPL), which pays monthly, raised its dividend 5% with its declaration in December 2019.
Many names have held dividends constant for several quarters running.
Finally, there are companies that have not given guidance but have paid the same dividend for more than four quarters. Of course, past performance is not indicative of future results, but the consistency of distributions bears noting, with a handful of companies having paid the same amount for years.
The midstream space can be divided almost equally into three groups – those with solid 2020 guidance, those with no guidance but a trend of growing, and those that have had steady payouts for some time. Of course, a few names break the mold due to a recent cut (ENLC) or guidance to maintain the dividend (EQM, ETRN). Overall, it is encouraging to see many names growing their dividends sequentially, and companies that have cut in the past resume growth. Additionally, with midstream companies approaching a free cash flow inflection point, particularly in 2021, it’s possible that excess cash flow will drive further dividend growth.