Chesapeake Energy Midstream Partners: Increasing Dividend Growth for Years to Come

Chesapeake Midstream Partners L.P. (CHKM) is a growth-oriented partnership focused on managing, operating and acquiring new natural gas gathering systems and midstream energy assets. The company should provide increasing dividend income for years to come. CHKM has two core customers: Chesapeake (CHK) and Total SA (TOT).

Chesapeake Midstream Partners serves CHK's and Total's pipelines. These fee arrangements are in place for 20-year contracts. Natural gas gathering is a fee-based business established with long-term, fixed fee contracts. This provides stability for dividend planning as an established revenue stream is in place.

Strong Parents

Chesapeake Energy and Global Infrastructure Partners own 42% of CHKM. The IPO placed 16% of the outstanding shares in investors' hands. Chesapeake Energy is the second-largest producer of natural gas in the U.S. It is in the top 20 of exploration and developers of crude oil and natural gas liquids. CHK's core assets are located in the key natural gas locations: Marcellus, Barnett and Haynesville. CEO Aubrey McClendon is the well-known industry visionary. His plans clearly focus on CHKM providing natural gas gathering systems for CHK's growing production for years to come.

CHKM key statistics:

• Market Cap: $3.94 billion.
• Chesapeake Energy Corporation is a $21-billion parent with long-term contracts in place with CHKM.
• Current dividend is forecast at $1.40-per share.
• Current annual dividend yield is 4.8%.
• CHKM is focused, within its presentations and investor dialogue, on growing and expanding its fee-based revenue model.

Chesapeake Energy

Chesapeake Energy, on July 18th, hosted its investor presentation. Here are a few key items of interest:

• 21-consecutive years of production growth
• No. 1 driller in the world of horizontal wells and horizontal shale wells
• No. 1 hedging track record in the industry; $7.0 billion in realized gains since 2001

CHK's continued focus on production growth will enhance the need for further CHKM's fee-based services.

Global Infrastructure Partners (“GIP”)

The investor is well served to be familiar with GIP. GIP owns a 42% stake in CHKM. The strategic relationship dates back to September, 2009. Key notes of interest include:

• Credit Suisse (CS) and General Electric (GE) are founding partners in GIP
• GIP's key investments are in infrastructure: energy, transport, waste, water
• GIP's mission statement is one of a long-term investor

Conclusion

CHKM has $220 million in debt, but otherwise has a debt-free balance sheet. Future debt issuance will permit CHKM to expand its presence in the Barnett Shale properties. CHKM plans to accept future drop-down assets from CHK for pipeline expansion. The distribution should continue to grow in the near-term and long-term.

CHKM began trading on July 29th, 2010. CHKM has a record of three quarterly dividends, each dividend higher than the last. The anticipated growth in CHK and Total SA should expand CHKM's fee-generation business. CHKM should continue to deliver significant dividend growth with its established industry partners. The partners, CHK and TOT, are aligned with the growth in Chesapeake Midstream Partners' business model.

Disclosure: I am long CHKM.