Western Gas Partners Riding Anadarko Coattails To Strong Dividend Growth

Dec. 5.12 | About: Western Gas (WES)

Energy midstream MLP Western Gas Partners (NYSE:WES) is just a few years old and has already provided a tremendous return to investors. The company appears poised to continue to deliver close to 15% annual distribution growth, which should put Western Gas Partners on every income investor's radar.

Western Gas Partners was spun out of the energy midstream business of Anadarko Petroleum (NYSE:APC) in May of 2008. Anadarko views midstream operations as an important part of its business, giving the division a separate tab on its website.

Note: MLP companies such as Western Gas Partners have units and pay distributions. The words stock, shares and dividends may be used here with the understanding that the rules of MLP units apply including the tax consequences of investing in MLP units.


Western Gas Partners provides midstream energy services in the East and West Texas, Mid Continent and Rocky Mountain energy plays. Company assets include natural gas gathering systems, treating and processing facilities. one natural gas pipeline, 2 NGL pipelines and a crude oil pipeline. Three quarters of the company's gross margins are derived from liquids rich energy basins and 96% of revenues are from fixed price fee-based contracts.

Since the 2008 IPO, the Western Gas Partners assets have been built up from drop downs from Anadarko's midstream business. At the current time, the Western Gas Partners assets are about half of the total Anadarko midstream business. Anadarko Petroleum owns the MLP general partnership interests and 42% of the limited partner units.

Record of Growth

In its short history, Western Gas Partners has done very well for investors. From the IPO, the share price has tripled and the quarterly distribution rate has increased by 67% from 30 cents to the most recent 50 cent payout. The 50 cents paid for the 3rd quarter was a 19% improvement over a year ago. Distributable cash flow coverage was at a 1.27 times ratio for the first three quarters of the year.

In the third quarter conference call CEO and President Donald R. Sinclair stated the company had a very high confidence level that the distributions would increase by at least 15% in 2013.


At the 50 cent distribution rate Western Gas Partners currently yields about 4.2%. Add in 15% dividend growth and this MLP appears to be a very attractive income investment. The increasing distribution rate should pull up the share value at about the same rate or higher. Add in the support/ownership of Anadarko and Western Gas Partners looks like a solid investment for at least the next 3 years.

Anadarko will continue to increase its drilling in the basins covered by Western Gas Partners and the energy company will regularly drop down assets to the MLP. This is as close to built-in, steady growth as you will find in an attractive yielding investment.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.