Examining 2024 Midstream/MLP Dividend Coverage: Stability Amid Evolution

The midstream MLP sector entered 2025 with its dividend-paying reputation intact, thanks to robust cash flow generation and disciplined capital management. Despite macroeconomic headwinds, midstream companies maintained solid distribution coverage ratios in 2024, driven by fee-based revenue models, strategic growth projects, and deleveraging efforts. This analysis explores the key metrics, drivers, and risks shaping the sector’s dividend sustainability.

2024 Dividend Coverage: A Sector Snapshot

Midstream MLPs reported average distribution coverage ratios of 1.7x–1.8x in 2024, with adjusted EBITDA growth and disciplined capital allocation underpinning stability. For instance:
- Enterprise Products Partners (EPD) achieved a 1.8x coverage ratio in Q4 2024, supported by $2.3 billion in annualized distributable cash flow (DCF).
- Delek Logistics (DKL) maintained a 1.2x coverage ratio, driven by higher Permian Basin throughput and the H2O Midstream acquisition.
- Hess Midstream (HESM) grew adjusted EBITDA by 11% year-over-year, enabling a 24% EPS increase, while targeting 5% annual distribution growth through 2027.

Key Drivers of Coverage Stability

1. Fee-Based Revenue Models: Over 80% of midstream MLPs derive the majority of cash flow from fixed-fee contracts (e.g., Hess Midstream’s 100% fee-based model), insulating payouts from commodity price volatility.
2. Strategic Capital Allocation: Companies prioritized debt reduction and dividend reinvestment over aggressive expansion. For example, Enterprise Products repurchased $1.1 billion in units in 2024, while Hess Midstream aims to reduce its net debt/EBITDA ratio to below 2.5x by 2026.
3. Structural Demand for Energy Infrastructure: Rising natural gas demand for LNG exports and petrochemical feedstocks boosted cash flows for firms like Cheniere Energy (LNG), which guided to 10% annual dividend growth through 2030.

Sector Risks and Challenges

• Leverage Management: While the sector’s average debt/EBITDA ratio fell to 3.7x in 2024, high leverage at certain firms (e.g., Summit Midstream’s 3.9x as of late 2024) poses risks during prolonged commodity downturns.
• Regulatory and Operational Risks: Permitting delays for projects like LNG terminals or pipeline expansions could disrupt cash flow.
• Metric Shifts: Some companies (e.g., Kinder Morgan) are moving away from DCF-based metrics to free cash flow after dividends (FCFAD), complicating direct comparisons.

Outlook for 2025 and Beyond

The sector’s dividend growth pipeline remains robust, with over 80% of AMNA constituents by weighting increasing payouts in 2024. Key growth catalysts include:
- Hess Midstream’s 5% annual distribution growth through 2027, backed by Permian Basin expansion.
- Cheniere’s 10% dividend growth target, fueled by its Cove Point LNG terminal.
- Plains All American’s (PAA) 19.7% dividend hike in Q4 2024, reflecting strong crude and NGL volumes.

Conclusion: A Sector Built for Resilience

Midstream MLPs’ 1.7–1.8x coverage ratios and zero dividend cuts since July 2021 underscore their financial resilience. Fee-based contracts, operational discipline, and a focus on deleveraging have created a stable dividend environment. Investors should prioritize firms with explicit growth targets (e.g., Hess Midstream, Cheniere) and low leverage ratios to mitigate coverage compression risks.

With $262.5 million in projected 2025 adjusted EBITDA for Summit Midstream and Enterprise Products’ record $7.8 billion DCF in 2024, the sector remains a compelling income play. As long as energy infrastructure demand holds and companies maintain capital prudence, midstream MLPs will continue to reward investors with steady payouts and growth.

This analysis synthesizes financial metrics, operational trends, and industry context to provide a clear roadmap for evaluating midstream MLPs’ dividend sustainability in 2025 and beyond.