Unlock Attractive Yields with This Top Pipeline Stock
Investors seeking passive income often find pipeline companies to be an attractive option. These companies generate stable revenue backed by long-term contracts and government-regulated rate structures, providing a solid foundation for paying attractive dividends. Last year, the sector experienced a resurgence, driven by an expected increase in natural gas demand, which sent most pipeline stocks soaring.
MPLX: A High-Yielding Gem
One pipeline operator that stands out from the crowd is MPLX (NYSE: MPLX). With a 7.5%-yielding distribution, it offers a significantly higher yield than the S&P 500’s 1.2%. This master limited partnership’s (MLP) high-yielding payout is built on a sustainable foundation, backed by diversified cash flows from government-regulated rate structures and long-term contracts with high-quality customers.
A Fortress-Like Balance Sheet
MPLX’s financials are impressive, with $4.3 billion in net cash provided by operating activities through the first nine months of last year. This comfortably covered its distribution payments of $2.6 billion, leaving room for funding organic expansion projects and acquisitions. The MLP’s balance sheet is robust, with $2.4 billion in cash and a low 3.4 leverage ratio, well below the 4.0 range its stable cash flows can support.
Distribution Growth: A Key Differentiator
What sets MPLX apart from its high-yielding peers is its distribution growth. The MLP has increased its distribution every year since its formation in 2012, delivering a robust 10.7% compound annual distribution growth rate since 2021. With ample fuel to continue increasing its payout, MPLX is poised for future growth.
Growth Drivers: Organic Expansion and Acquisitions
MPLX has several organic expansion projects underway, including natural gas processing plants, pipeline expansions, and gas pipelines. These projects will supply the MLP with additional sources of cash flow when they come online over the next two years. Additionally, the company has a history of making accretive acquisitions and joint venture investments, which will continue to drive growth.
A Top Pick for Passive Income
Given its strong financial profile, visible growth prospects, and attractive yield, MPLX stands out as a top pipeline company to buy for passive income this year. While investors should be aware that they will receive a Schedule K-1 federal tax form, the benefits of investing in MPLX far outweigh the drawbacks.
Leave a Reply