Wouter van Kempen is the Chairman and CEO of DCP Midstream, the largest natural gas gathering and processor company in the United States. Tune in to hear Wouter describe DCP‘s operational footprint, the game-changing technological advancements his company is implementing, and a truly compelling investment story.
DCP is an MLP, or master limited partnership, that provides midstream services to the oil and gas industry. But one of the great things about having DCP on the program is that it’s the largest processor of natural gas in the US and, admittedly, I wasn’t fully aware of just how significant DCP is in terms of the critical nature of it’s asset portfolio to the oil and gas industry. You’ll hear more about this from Wouter, but DCP touches around 10% of all the natural gas that is produced in the lower 48.
While it’s an honor to have such an important midstream player on the podcast, I’m equally, if not more honored to have this particular CEO on the program. Just a little bit of background, I was the covering analyst for DCP at the firm I used to work for. I had the chance to meet with Wouter on multiple occasions and I have an enormous amount of respect for him. In my opinion, he’s a top tier chief executive, and I’m not just referring to midstream CEOs. He’s got a razor-sharp intellect, he has vision, and he’s someone who is extremely disciplined in terms of his willingness to invest the company’s shareholder capital. He thinks about the business like an owner should! Wouter isn’t interested in growth for growth’s sake and he’s truly committed in delivering on the inherent promise between the company and its shareholders. I also think this interview really underscores the value in DCP’s common equity.
I think there’s a number of compelling reasons to invest in this company. But the three most important, at least for me, are the asset portfolio and corresponding moat, management, and the dividend. There are a lot of ‘good’ companies with wide moats out there, so I’ll just focus on management and the juicy dividend here. It’s also important to emphasize that those two factors are, at least for me, intertwined. Let me be clear, I’m not saying that the dividend yield is high because of management, but rather I have confidence in the stability of the div/distribution because of management.
During the financial crisis, DCP stock price dropped below 10 dollars a share and the distribution yield almost hit 30%. But management didn’t cut the distribution. Even after oil prices began their gradual decline from more than $100/bbl in 2014 to less than $30/bbl in 2016, Wouter van Kempen, et al. didn’t cut the distribution. Despite almost hitting a yield of 17%. It’s also important to emphasize that during the 2014-2016 time frame, DCP wasn’t generating enough internal cash flow to cover the distribution, but still, management didn’t cut.
DCP has never cut the distribution and that is something that he and the rest of the company are extremely proud of. And they should be! Consider some of the other midstream companies. Numerous midstream companies have cut their distributions; either due leverage ratios getting too high, declining cash flow, or because management didn’t think they were being ‘rewarded’ for the dividend (i.e., SMLP and SNMP). The latter rationale is a midstream cardinal sin, at least in my book!
If you’d like to learn more about MLPs, you should definitely check out my interview with one of Wall Street’s best midstream analysts, Chris Sighinolfi.