Hess Corporation is an international petroleum and natural gas company with its headquarters in New York. The company was founded in 1823 and currently has around 40,000 employees across 40 countries. In 2015, the company reported annual revenues of US$14 billion.
The Petroleum Connection
The petroleum connection of Hess dates back to the company’s founding in 1823. Since then, the oil and natural gas company has been involved in the exploration and production of petroleum. In 2015, these activities accounted for around one-quarter of the company’s revenues.
While this may sound like a lot of work, it’s well worth it. Oil and natural gas are valuable assets, which are lucrative sources of investment cash. Also, as the world’s largest petroleum producer, Hess has a lot of experience in this area.
A Large Cash Cow
Hess has a large cash cow, which generates around US$1.5 billion in annual cash flows. This is a result of its successful marketing business, which sells petroleum products to customers worldwide. Because of this, the company doesn’t need to rely on high debt levels to fund its operations.
In 2015, this business accounted for 27% of Hess’s total revenues. This business model has enabled the company to consistently raise its dividend, which now stands at 26.7% Yield. The business is also significantly less volatile than the oil and natural gas industry as a whole, seeing a decline in volatility of 13% over the last five years.
To further demonstrate the stability of its operations, Hess has invested well in the infrastructure of its retail business. Through its strategic partnerships with major retail players across the globe, Hess is able to provide its customers with smooth and convenient shopping experiences.
The company’s strategic partnerships allow it to effectively enter new markets, gain market share, and ensure that it has a physical presence in key areas. Examples of these partnerships include its Japan-based partnership with Mitsui, which controls the country’s gasoline retail sector, and its US-based partnership with Albertsons Companies, a retail grocery chain, which operates 734 grocery stores across the country. These two partnerships enable Hess to enter two key markets and effectively compete with large oil companies like ExxonMobil and Chevron.
Is Speedway Owned By Hess?
In terms of its overall financial position, Speedway is in a slightly better position than PetroCanada. The convenience store chain actually generates positive cash flows, with around $15 million per year. However, considering its fixed costs, this isn’t enough to entirely cover its operating expenses. In 2015, as a percentage of sales, the company’s operating expenses were 22%, which is higher than the 18% average for gas stations. It’s also higher than the 20% average for convenience stores.
Despite this, and in comparison to its peers, Speedway is a decent investment. Convenience stores are on the rise, with sales increasing by around 10% in the last five years, and the rise of e-commerce, on-demand water pumping, and car share services, are creating additional opportunities for the retailer.
What Will The Future Of Convenience Stores Look Like?
Convenience stores will continue to be a significant presence in the market, with around 500,000 units worldwide expected to be sold in 2025. This represents a compounded annual growth rate of 7% over the last five years, and it’s anticipated that by this time around there will be 9,200 convenience stores across America. This industry is certainly viable, and it provides investors with a good opportunity to get in on the ground floor.
What’s more, as these stores need constant maintenance and upgrades, investors seeking a passive income investment should consider convenience stores.