As inflation continues to dominate business headlines, the energy sector is by far the most represented sector in the IBD 50. One of the strongest performers is Western Midstream Partners, which offers an impressive dividend yield and strong growth potential, making it a stock to watch.
Western Midstream — headquartered in The Woodlands, Texas — gathers, treats, processes and transports natural gas and petroleum. The company operates bases in two key areas, the Delaware Basin in West Texas and the DJ Basin in Colorado.
As with the majority of energy producers, Western Midstream has been outperforming the stock market as higher energy prices take hold. After posting an earnings per share of $2.18 last year, EPS is projected to increase to $2.89 and $3.15 in 2022 and 2023, respectively.
Western Midstream's first-quarter results (reported May 10) showed record growth. Earnings per share of 75 cents beat analyst estimates, with record levels of net income and cash flow. Furthermore, the company announced an increase in the 2022 EBITDA guidance and a recommitment to its distribution guidance of $2 per share this year.
The company reported these impressive results despite headwinds from well completion timing and inclement weather in the Delaware basin, which decreased throughput.
Stock To Watch Yields Impressive 7.9%
Western Midstream has rewarded investors through its increasing dividends. A $2 distribution this year is impressive and a substantial increase from the $1.26 paid out in 2021. Currently, Western Midstream has a dividend yield of 7.5%. This represents one of the market's highest yields and is way above the 1.3% average of the S&P 500.
While strong growth and an impressive dividend yield make Western Midstream an attractive investment, investors should take caution given the high volatility in the energy market. With oil and gas prices elevated, signs of slowing growth or increased supply would provide significant harm to Western Midstream's growth and dividend prospects.
Western Midstream currently ranks No. 3 in IBD's 13th-ranked Oil & Gas Pipeline industry group and boasts a Composite Rating of 97. Shares have been outperforming the market with a relative strength line at new highs.
The stock to watch is forming a base with a 27.39 entry identified by MarketSmith. A handle area in the pattern offers an alternative buy point at 27.18.
