1 Magnificent High-Yield Pipeline Stock Down 20% to Buy and Hold Forever

Within the energy patch, the midstream space, including pipeline operators, is hallowed ground for investors seeking above-average dividend yields. Those outsize payouts are rewards for investing in a slow-growth, toll-road-like industry with steady cash flows.

Dividends and predictability are attractive features, but they don't provide complete protection against downside. Take the case of Kinetik Holdings (NYSE: KNTK). This mid-cap pipeline company, which focuses on the energy commodities-rich Permian Basin, shed about 36% of its value over the 12 months ended Thursday, Feb. 5.

This pipeline stock tumbled last year, but it could be a buy for long-term investors. Image source: Getty Images.

Look now because the stock is on the mend, surging 14% over the past month. Time will tell just how sustainable that rally is, but some signs point to Kinetik as a credible consideration for buy-and-hold strategies for risk-tolerant investors.

Kinetik is delivering the dividend goods

As of Feb. 5, Kinetik sports a dividend yield of 7.85%. Obviously, that's eye-catching, but more important than yield is payout growth. This Texas-based midstream company delivered on that front a couple of weeks ago, announcing a 4% increase in its quarterly payout to $0.81 a share.

The company has been paying dividends since 2021, and there have been some increases along the way, indicating that management prioritizes shareholder rewards. Undoubtedly, there are long payout-increase streaks across the commodities complex, but Kinetik is trending in the right direction regarding dividend consistency.

This pipeline operator may be positioned for durable, long-term increases in its dividend payment, particularly if it meets or beats expectations for improved earnings this year and in 2027, and as new projects come online.

One of those projects is the ECCC pipeline, which could yield results as early as the second quarter. If Kinetik executes there and if natural gas liquids (NGL) volumes prove sturdy, those could be catalysts for dividend growth and accretive to the long-term thesis.

Kinetik offers value and other benefits

Given Kinetik's weakness over the past year, investors are right to ponder if this is a value trap. Thirty-six percent declines have a way of giving off value trap vibes, but this energy stock doesn't appear to be a dubious value name. Instead, it has the makings of a legitimate value play, as it trades at a discount to peers.

The dividend and value may be among the reasons why some professional market participants are nibbling at this stock. Another one might be chatter on Wall Street that Kinetik is a viable takeover target for larger pipeline entities looking to increase their NGL and Permian Basin footprints.

On its own, takeover speculation isn't a reason to buy a stock, because the rumors may prove unfounded. Still, if a transaction materializes, it could be icing on the cake for Kinetik investors. In the meantime, they can enjoy the prospect of improved execution and, of course, the dividend.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.