Energy Transfer vs. MPLX: Which Pipeline Giant's High-Yield Dividend Is Actually Safer?

Dividend-oriented investors carefully look at a stock's dividend yield. There's often a high-but-safe spot, generally around 3% to 4%, and stocks that deliver yields above that are generally considered riskier.

However, when you look at pipeline or midstream energy stocks, the yield is higher, generally between 5% and 8%, because these companies generate highly predictable, fee-based cash flows backed by long-term, take-or-pay contracts.

Two of the most popular pipeline stocks with high yields are MPLX (NYSE: MPLX) and Energy Transfer (NYSE: ET), both of which deliver dividends above 6%. Let's see which has the safer dividend.

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Energy Transfer is on a dividend hot streak

Energy Transfer, based in Dallas, operates more than 140,000 miles of pipeline and associated energy infrastructure. In July, it raised its dividend for the 19th consecutive quarter to $0.34 per share, and at the stock's current price, the yield is around 6.56%. That's superior to most of its midstream competitors. Its payout ratio, as of the second quarter, is 56%, well within the safety limits for a pipeline stock.

The company grew distributable free cash flow (FCF) by 32% year over year in the second quarter to $2.59 billion. That means its FCF per share is around $0.79, implying an FCF distribution ratio of around 43%.

The company has a diverse set of customers and benefits from the increased need for natural gas infrastructure driven by more data centers, power grid growth, and Gulf Coast natural gas liquids (NGL) export facilities. The master limited partnership has expanded its pipeline capacity.

MPLX's dividend is fueled by a cash machine

MPLX, based in Findlay, Ohio, operates a network of crude oil and refined product pipelines, an inland marine business, light-product terminals, storage caverns, refinery tanks, docks, loading racks, associated piping, and crude and light-product marine terminals.

Since it went public through an initial public offering (IPO) in 2012, MPLX has raised its dividend every year. That's a longer streak than Energy Transfer, which trimmed its dividend by 50% in 2020. On top of that, MPLX's yield is higher -- 7.39% at its current share price.

In its second-quarter report, it said it expects dividend increases of 12.5% in 2026 and 2027.

MPLX, also a master limited partnership, reported second-quarter net income of $1,077, up 2.7% year over year, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1,775, an increase of 5% over the year-ago period.

One weakness is that its distribution coverage is 1.3x, compared to around 1.8x for Energy Transfer, but again, its dividend is relatively safe at that ratio. The company carries significantly less long-term debt than Energy Transfer and has a lower debt-to-equity ratio.

MPLX is sponsored by Marathon Petroleum (NYSE: MPC). A vast majority of MPLX's logistics and storage revenue comes from long-term, fee-based commitments directly with MPC. This captive relationship ensures steady demand regardless of broader commodity price shifts.

It's tough to go wrong with either stock

Energy Transfer's shares are up more than 24% so far this year, while MPLX's have risen just a little more than 9%.

Both companies deliver solid, dependable dividends and are spending big on expansion. Purely from a dividend safety standpoint, I prefer MPLX for its longer track record of dividend growth, cleaner balance sheet, and greater financial flexibility due to lower debt.

James Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.