MPLX (MPLX 0.17%) presents a lucrative income investment opportunity that is often overlooked by investors. This master limited partnership (MLP) offers a substantial payout, currently yielding 9.5%, putting the S&P 500’s meager 1.5% dividend yield to shame.
Built to Generate Income
One of the key factors that sets MPLX apart is its gathering and processing business, which provides crucial support to oil and gas production in two significant basins. These assets generate consistent cash flow, protected by government-regulated rate structures and long-term contracts with top-tier customers, including its parent company Marathon Petroleum, a leading refining giant.
With nearly $4 billion in distributable cash flow for the first nine months of this year, MPLX proves its stability and reliability. The MLP distributed $2.4 billion of that cash to investors, boasting a comfortable distribution coverage ratio of 1.6 times. This strong coverage allows MPLX to retain around $1.5 billion in cash for expansion projects and to maintain a robust balance sheet, facilitating $727 million in capital projects throughout the year.
MPLX concluded the third quarter with $960 million in cash, $2 billion available on its bank credit facility, and $1.5 billion available on an intercompany loan agreement with Marathon. Importantly, its leverage ratio stood at a healthy 3.4 times, well below the 4.0 times it could support, thanks to its cash flow’s steadfastness.
The Fuel for Continued Growth
MPLX possesses numerous expansion projects in the pipeline that will reach completion in the coming years. The company’s logistics and storage segment is especially focused on expanding its natural gas, natural gas liquids (NGLs), and crude oil gathering pipelines to accommodate the increasing production in the Permian and Bakken basins.
Additionally, MPLX, together with its partners, recently concluded the expansion of their Whistler pipeline and is actively constructing the Agua Dulce Corpus Christi (ADCC) pipeline lateral, scheduled to commence operations by Q3 of next year. The MLP is also working on expanding its BANGL joint venture pipeline, expected to be operational by the first half of 2025.
Within its gathering and processing segment, MPLX is constructing several new plants in the Permian and Marcellus basins to cater to the growing demand from producers. The sixth and seventh processing plants in the Permian (Preakness II and Secretariat) are set to launch by the first half of 2024 and second half of 2025, respectively. Furthermore, the MLP is building Hammon Creek II in the Marcellus, which is anticipated to be operational in the first half of the next year. These projects will propel the steady growth of MPLX’s cash flow in the upcoming years.
Energy industry consultancy WoodMackenzie predicts a 22% growth in U.S. natural gas demand by 2030, primarily driven by the Northeast (Marcellus) and Permian regions.
Moreover, MPLX aims to expand its operations into lower-carbon energy sectors, such as hydrogen and carbon capture and sequestration. Marathon’s two hydrogen hubs have received funding from the Department of Energy, bringing them closer to fruition. Marathon will be responsible for building and operating the hydrogen production facilities, while MPLX may play a role in transporting hydrogen and carbon dioxide associated with these facilities. Consequently, lower carbon energy solutions present a promising avenue for MPLX’s future growth.
The energy sector has witnessed significant consolidation in the past year, and this trend is likely to persist.
With robust growth drivers in place, MPLX is poised to sustain its distribution increase momentum. Earlier this year, the MLP raised its payout by 10%, extending its streak of annual distribution growth that dates back to 2012 when Marathon established its affiliated MLP.
A High-Octane Income Stock
MPLX’s distribution is backed by a business that generates consistent cash flow, thereby fortifying its payout’s durability. Its strong balance sheet adds an extra layer of security for investors. Consequently, MPLX offers an excellent opportunity for those seeking to secure higher investment income.