Pipeline Company tend to An excellent investment for those looking for passive income. They generate very stable revenue, supported by long-term contracts and government-regulated rate structures. This provides them with the cash flow to pay attractive dividends.
The industry experienced a recovery last year on expected increases in natural gas demand Pipe inventory Soaring. Although rebound compression dividend yield Across the industry, many pipeline operators still offer attractive yields compared to the broader market. Doplex (NYSE:MPLX) It has one of the highest yields in the industry. Here's why it's one of my top stocks to buy this year passive income.
MPLX currently pays a 7.5% earnings distribution. This is several times higher than before S&P 500 Indexof The yield is 1.2%.
this master limited partnership (MLP)'s high-yield payouts are built on a very sustainable basis. The midstream company's diversified operations generate stable cash flow and are supported by a government-regulated rate structure and long-term contracts with high-quality customers, including its parent refining giant Marathon Oil Company.
MPLX generated approximately $4.3 billion in net cash from operating activities first nine months of last year. That's equivalent to 1.6 times its $2.6 billion distribution payment. MLPs use the cash they retain to fund organic expansion projects and acquisitions (approximately $750 million and $900 million, respectively).
MPLX maintains a fortress-like balance sheet as its cash flow covers its distribution and all growth-related investments. MLP ended Q3 with $2.4 billion in cash and margins as low as 3.4 Leveragewell below the 4.0 range that its stable cash flow can support. It uses some of its financial flexibility to return additional cash to investors last yearrepurchased $226 million worth of common units through the third quarter.
MPLX stands out among its high-yield peers for its distribution growth. The MLP's dividends have increased every year since its inception in 2012. Since 2021, its dividend payments have grown at a compound annual growth rate of 10.7%, including a 12.5% increase in dividends last year.
The company has plenty of incentive to continue increasing its dividends going forward. Organic expansion projects are main Growth drivers for MLPs. There are currently several projects underway, include:
natural gas processing plant: MLP built two new natural gas processing plants last year and has two more under construction with commissioning dates in the second half of 2025 and 2026.
Bengal: The company is expanding its BANGL joint venture pipeline to add natural gas liquids transportation capacity, with completion expected in the first quarter of 2025.
gas pipeline: MPLX and its partners are building the Blackcomb and Rio Bravo pipelines to move more natural gas from the Permian Basin to the Gulf Coast. Both pipelines will be put into service in the second half of 2026.
These expansion projects will provide MLP with additional cash flow source when they come online in the next two years. In the meantime, the company should be able to continue to secure additional expansion projects, especially given the surge in natural gas demand expected in the coming years for artificial intelligence data centers and other growth catalysts.
Acquisitions are another growth driver for MPLX. For example, last March, the company expanded its footprint in the Utica area by spending $625 million to acquire additional ownership interests in existing joint ventures and dry gas gathering systems. The MLP also purchased another 20% interest in the BANGL pipeline, raising its stake to 45%. Finally, MPLX and its Whistler pipeline partners ambridge Combine that with the Rio Bravo pipeline project. They subsequently approved the construction of the associated Blackcombe pipeline.
MPLX has sufficient financial flexibility to continue to make accretive acquisitions and joint venture investments as opportunities arise. It has interests in several other joint ventures and may seek to consolidate them. Additionally, MLPs can acquire midstream assets, acquire pipeline companies, or form additional joint ventures to enhance their footprint and growth prospects.
Today, MPLX pays out very generous cash distributions to investors. Given the company's strong financial position and clear growth prospects, the payout will likely continue to grow at an above-average rate. These characteristics make it the best passive income pipeline company to buy this year, as long as investors are willing to embrace them. Schedule K-1 Federal Tax Return MLP sends them every year.
Before buying MPLX stock, consider the following factors:
this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks There are stocks for investors to buy now...and MPLX is not one of them. The 10 stocks selected could generate huge returns in the coming years.
consider when NVIDIA This list was created on April 15, 2005... If you invested $1,000 when we recommended, You will have $843,960!*
stock advisor Provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. this stock advisor Services are more than four times Return of the S&P 500 since 2002*.
See 10 stocks »
*Stock Advisor returns as of January 13, 2025
Matt DiLallo is with Enbridge. The Motley Fool has an interest in and recommends Enbridge. The Motley Fool has a disclosure policy.
My Top High-Yield Pipeline Stocks to Buy in 2025 for Passive Income Originally published by The Motley Fool