This Energy Stock Pays an 8% Dividend (And It's Safe)
Key Points
MPLX generates more than enough stable cash flow to cover its high-yielding distribution.
The MLP also has a rock-solid balance sheet.
It has the financial flexibility to grow its operations and distribution in the future.
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The dividend yield on the S&P 500 is currently near its all-time low at 1.2%. As a result, most stocks have rather low dividend yields these days.
However, that's not the case with MPLX (NYSE: MPLX). The energy company currently yields 8%. Even better, that big-time dividend is very safe.
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A rock-solid, high-yielding payout
MPLX is a master limited partnership (MLP) that focuses on owning energy midstream assets, including oil pipelines, gas processing plants, and storage terminals. These assets generate very stable cash flow backed by government-regulated rate structures and long-term contracts. The company has produced $4.3 billion of cash flow through the first nine months of this year. That was enough to cover its big-time payout by a comfortable 1.4 times.
The MLP further fortifies its high-yielding distribution by having a strong balance sheet. MPLX ended the third quarter with a 3.7 times leverage ratio. That's comfortably below the 4.0x range its stable cash flows can support. Its leverage ratio is on track to go even lower in the coming quarter after the company closes the $1 billion sale of its Rockies gathering and processing assets. That sale is part of its capital recycling strategy, which involves selling non-core assets to fund higher-returning new investments.
MPLX has secured several new investments this year, including the acquisition of Northwind Midstream and the approval of a long list of organic expansion projects. The MLP currently has expansion projects underway on track to enter commercial service through 2029.
The company's strong financial profile and visible growth prospects recently gave it the confidence to hike its distribution by 12.5% for the second straight year (and fourth consecutive year of double-digit distribution growth). It should have plenty of fuel to continue growing its payout in the future. MPLX's rock-solid and steadily rising distribution makes it an attractive option for income-seeking investors who are comfortable receiving the Schedule K-1 Federal Tax Form the MLP sends each year.
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Matt DiLallo 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.
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