Better Dividend Stock: MPLX vs. Enterprise Products Partners

Enterprise Products Partners (NYSE: EPD) and MPLX (NYSE: MPLX) are two of the biggest master limited partnerships (MLPs). They operate large, integrated energy midstream assets that generate lots of stable cash flow, meaning they pay lucrative and steadily growing distributions.

The MLPs have two of the best records of distribution growth in the sector. However, most investors will probably only want one in their portfolio, especially considering the tax complications of receiving the Schedule K-1 Federal Tax Form that MLPs send their investors each year. Here's a look at which one is the better buy for dividend income right now.

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Drilling down into their financial profiles

Enterprise Products Partners and MPLX generate boatloads of predictable cash flow backed primarily by long-term contracts and government-regulated rate structures. Enterprise Products Partners produced $2 billion of distributable cash flow in the first quarter, up 5% year over year, while MPLX generated $1.5 billion, an 8.5% increase. That was enough cash to cover their high-yielding payouts. Enterprise's payout of nearly 7% is covered 1.7 times, while MPLX's 7.5% is covered about 1.5x. Those strong coverage levels enable the MLPs to generate significant excess free cash flow to fund growth projects and maintain financial flexibility.

The MLPs also have two of the strongest balance sheets in the energy midstream sector. Enterprise Products Partners has a low 3.1 leverage ratio, which backs its strong A-/A3 bond ratings, the highest in the space. Meanwhile, MPLX's leverage ratio was a low 3.3, well below the 4.0 range its stable cash flows can support within its current credit rating of BBB/Baa2.

While both MLPs have very strong financial profiles, Enterprise Products Partners has a slight edge. It has a higher coverage ratio and credit rating, giving it more financial flexibility.

Evaluating their growth profiles

Enterprise Products Partners and MPLX have excellent records of growing their operations, cash flow, and distributions. Enterprise Products Partners has raised its distribution for 26 straight years, including by 3.9% last year. Meanwhile, MPLX has increased its payout every year since its formation in 2013 while growing it at more than a 10% compound annual rate since 2021.

Both MLPs have plenty of fuel to continue increasing their payouts. Enterprise Products Partners has $7.6 billion of major capital projects under construction. Its expansion projects include gas processing plants, pipeline expansions, a natural gas liquids (NGL) fractionator, and several export terminal expansions. It expects these projects to enter commercial service by the end of next year, driving cash flow growth through 2027. While the MLP doesn't have any other major capital projects that it expects to approve in the near term, it does have other smaller projects in the works. However, its current investment plans would see its growth capital spending decline from a range of $4 billion to $4.5 billion this year to between $2 billion and $2.5 billion in 2026. That could free up more cash to return to investors via distributions and buybacks.

MPLX has added several new expansion projects to its backlog this year. The company and its partners recently agreed to build the Traverse Pipeline, which they expect will enter service in 2027. They are also building the Blackcomb and Rio Bravo Pipelines, with in-service dates of the second half of 2026. Meanwhile, MPLX is building a liquefied petroleum gas export terminal with ONEOK, along with a related pipeline, that they expect to finish in 2028. In addition, the MLP is building two NGL fractionators for its parent company, Marathon Petroleum, with in-service dates of 2028 and 2029. Those in-service dates give MPLX visible growth through the end of the decade.

Excellent income options

Enterprise Products Partners and MPLX are great MLPs to buy for those seeking a lucrative and growing passive income stream. While I own Enterprise Products Partners and have no plans to sell, I think MPLX is the better buy for income-seeking investors right now. Since it has more growth visibility and offers a slightly higher current yield, MPLX could produce more income and generate higher returns for investors through the end of the decade.

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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Oneok. The Motley Fool has a disclosure policy.