MPLX (NYSE:MPLX) doesn’t get the recognition it deserves. The Master Limited Partnership (MLP) has been a premier passive income producer since its inception over a decade ago. The midstream company has increased its payments by over 380% each year.
The MLP currently offers a distribution yield of 8.3%expressed many times higher than that S&P 500The dividend yield is 1.4%. This massive payout is underway an extremely solid one financial basis. For this reason and because of the Pipeline companies With growth prospects visible, the company should have plenty of fuel to continue expanding its large passive income stream. This makes it an ideal option for those seeking steadily increasing cash flow and who are comfortable with the potential tax implications of an investment MLPs (e.g., that they send a Schedule K-1 each year instead of a Form 1099-DIV).
A financial fortress
MPLX recently reported its first quarter results. The midstream giant continues to generate strong and durable cash flow. It generated nearly $1.4 billion in distributable cash flow in the period, an increase of 8% compared to the first quarter of last year. It was enough money to cover the company’s lucrative payout by a comfortable 1.6 times. That’s in line with last year’s coverage ratio, although the company increased its payout by 10% late last year.
The MLP returned $951 million in cash to investors in the first quarter. This included distributions worth $75 million Share buybacks. The company kept the rest to fund organic expansion projects ($259 million in the quarter) and acquisitions.
The MLP strengthened its presence in Utica by acquiring an additional ownership interest in existing joint ventures (JVs) and a dry gas gathering system for $625 million during the quarter. This was the second consecutive quarter in which the company purchased a partner’s interest in a JV (MPLX also purchased the remaining 40% interest in a gathering and processing JV in the Permian Basin for $270 million in the fourth quarter -Dollar). These acquisitions will provide the company with additional cash flow this year.
MPLX maintained a strong financial position despite all of these growth investments. It ended the period with a 3.2x return Leverage ratio. That is an improvement from 3.5 times in the same period last year. It’s also well below the 4.0x level that its stable cash flows could support. In addition, the company has significant liquidity. That ended the first quarter with $385 million from Cash and about $3.5 billion from available credit. This gives him enormous financial flexibility to take advantage of future investment opportunities.
More growth is coming pipeline
The MLP expects to invest around $950 million in growth capital projects this year. There are currently several projects under construction. The company and its partners are building the Agua Dulce Corpus Christi Pipeline (ADCC) sideways, which is scheduled to begin operations in the third quarter. The company is also expanding the capacity of its BANGL JV pipeline, which is scheduled to be completed in the first half of next year.
MPLX is also building several additional natural gas processing plants. One plant was commissioned last quarter, another is about to be commissioned and a third is scheduled to be commissioned in the second half of next year. These projects will provide MPLX with additional revenue when they come online.
MPLX is in the process of improving its long-term growth prospects. The company and its partners are expanding a joint venture by combining their Whistler pipeline and Enbridge‘S Rio Bravo Pipeline Project. They expect the joint venture to close in the second quarter.
Rio Bravo will connect the gas supply to a Liquefied natural gas (LNG) Export terminal currently under construction. This pipeline is expected to be operational in the second half of 2026. The addition of this pipeline project represents another visible growth driver while increasing future expansion opportunities for Whistler and ADCC. Enbridge is contributing $350 million in cash to the JV and funding the first $150 million of Rio Bravo costs, which will also help reduce MPLX’s near-term capital needs.
The MLP has the financial flexibility to pursue new growth capital projects and make acquisitions. Future investments would help provide additional fuel to increase distribution.
A powerful passive income producer
MLPX continues to generate sustained, growing cash flow. This gives him the money to pay for an attractive and growing distribution while continuing to invest in expanding his business. Recently completed expansion projects and acquisitions will provide the company with additional cash flow growth in the short term, while the upcoming joint venture expansion will enhance its long-term growth prospects. Add its strong financial foundation, And MPLX should have no problem continuing to expand its strong distribution.
Should you invest $1,000 in MPLX now?
Before buying shares of MPLX, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and MPLX wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $525,806!*
Stock Advisor provides investors with an easy-to-understand roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks ยป
*Stock Advisor returns as of April 30, 2024
Matt DiLallo holds positions at Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
This dividend stock, with an 8.3% dividend yield, has plenty of fuel to continue generating massive amounts of passive income. It was originally published by The Motley Fool