Western Midstream: Why I Am Buying This 9% Yield Hand Over Fist

Western Midstream Partners (WES) announced the acquisition of Aris Water Solutions for $1.5 billion, a strategic move expected to significantly expand its water infrastructure and recycling capabilities, particularly within the Delaware Basin. This transaction is projected to be accretive to WES's Free Cash Flow, improve its revenue mix, and diversify its customer base, reinforcing its status as a compelling distribution play with an attractive 9% yield and a valuation of 8.9x forward EBITDA, slightly below midstream peers.

Analysis

Western Midstream Partners (WES) is executing a strategic expansion through its $1.5 billion acquisition of Aris Water Solutions, significantly increasing its water infrastructure and recycling capacity within the critical Delaware Basin. The transaction is positioned as a key catalyst for financial improvement, with management expecting it to be accretive to Free Cash Flow (FCF) while simultaneously enhancing the company's revenue mix and diversifying its customer base. From a valuation perspective, WES units trade at an 8.9x forward EBITDA multiple, a metric noted as being slightly below its midstream peers, suggesting a potentially attractive relative valuation. This is complemented by a compelling capital return profile, highlighted by a current 9% distribution yield and a track record of double-digit average dividend growth in recent years, reinforcing the thesis that WES combines disciplined capital management with a tangible growth trajectory.

Key Decisions for Investors

• Income-focused investors should consider the 9% yield and history of double-digit dividend growth, which is now supported by an FCF-accretive acquisition, as a strong bull case.
• Evaluate WES's valuation at 8.9x forward EBITDA, which is slightly below peers, as a potentially attractive entry point for exposure to the midstream sector with a clear growth catalyst.
• Investors should monitor the integration of Aris Water Solutions and upcoming financial reports to verify that the projected FCF accretion and revenue diversification are realized, as this is crucial to sustaining future dividend growth.