Why Dividend Champions Hess Midstream and VICI Properties Deserve a Core Portfolio Spot

In an era where private debt funds tout double-digit yields—often exceeding 12%—and speculative real estate ventures promise outsized returns, two unassuming dividend champions, Hess Midstream Partners (HESM) and VICI Properties (VICI), remain underappreciated anchors for income-seeking investors. While their yields of 7.6% and 5.5% respectively may pale next to flashy alternatives, their proven cash flow resilience, dividend reliability, and inflation-defying business models make them essential holdings for portfolios prioritizing safety and sustainability.

Dividend Reliability: A Shield Against Volatility

The cornerstone of any “core” holding is the predictability of cash flows. Hess Midstream’s 8-year dividend growth streak—with payouts rising from $0.65 to $0.71 per share in the past year—reflects its role as a fee-based midstream operator. Its contracts with Hess Corporation for gathering, processing, and transporting hydrocarbons in the Bakken Shale provide inflation-linked pricing mechanisms, insulating it from commodity price swings. While its payout ratio near 98% of distributable cash flow raises eyebrows, its $4.8 billion market cap and 2.0x dividend cover suggest earnings can absorb moderate volatility.

VICI Properties, meanwhile, leverages its $12 billion real estate portfolio—focused on gaming, hospitality, and experiential venues—to generate steady income. Over 7 years of dividend increases, its payout has grown from $0.33 to $0.43 per share, supported by 99% occupancy rates and leases tied to CPI adjustments. Even during the pandemic, its casinos and resorts in markets like Las Vegas and Atlantic City proved recession-resistant, with $334 million in liquidity as of Q1 2025.

Valuation: Bargains in a Frothy Market

Despite their yields, both stocks trade at discounts to their growth trajectories. Hess Midstream’s EV/EBITDA of 7.8x is well below the midstream sector average of 11.2x, reflecting investor skepticism about its payout sustainability. Yet its $1.7 billion in contracted cash flows through 2030—and minimal exposure to exploration risks—make its valuation a bargain.

VICI trades at a P/FFO (Price-to-Funds from Operations) of 14.5x, lower than the REIT sector average of 16.8x. Its $3.2 billion in liquidity and dividend payout ratio of 78% of AFFO (Adjusted Funds from Operations) underscore its margin of safety. Even as it pauses dividend hikes temporarily, its $1.3 billion senior notes offering and strategic investments in tribal casinos (e.g., a $510 million project in California) signal growth without overleveraging.

Growth Potential vs. Private Alternatives: A Risk-Adjusted Perspective

Private debt funds offering 12% yields often come with opaque structures, lack of liquidity, and counterparty risks—especially as interest rates stabilize. In contrast, HESM and VICI offer transparent disclosures, public market liquidity, and dividend histories that act as credibility badges.

Consider this:
- A $10,000 investment in HESM at its current $41.16 share price would generate $760 in annual dividends, with upside if its Bakken operations benefit from energy inflation.
- VICI’s $55.50 share price yields $5.50 annually per share, with $1.7 billion in development projects (e.g., a Las Vegas mixed-use resort) creating long-term value.

Both stocks also benefit from sector tailwinds: midstream energy demand from shale plays and real estate demand for gaming/hospitality spaces.

The Case for Core Holdings in a Risk-On World

While chasing 12% yields might feel tempting, the opportunity cost of capital preservation is often overlooked. HESM and VICI offer:
1. Inflation Hedges: Their fee-based and CPI-linked contracts protect against rising costs.
2. Dividend Safety: Both have maintained payouts even during energy downturns (HESM) and macro uncertainty (VICI).
3. Liquidity: Unlike private investments, their shares are tradable at any time.

Conclusion: Anchors in a Volatile Sea

In a world where yield-chasing can lead to portfolio shipwrecks, Hess Midstream and VICI Properties are the lifeboats of income investing. Their yields may not dazzle, but their cash flow predictability, sector resilience, and balanced valuations make them essential for portfolios seeking stability.

For investors, the choice is clear: prioritize safety and sustainability over fleeting high returns. Add these two dividend champions to your core holdings today—before their valuations catch up with their fundamentals.

Disclosure: This article is for informational purposes only. Consult a financial advisor before making investment decisions.