Master limited partnerships, otherwise known as MLPs, are appealing for income investors. MLPs widely offer high distribution yields above 5%.
Of course, investors should always do their due diligence to make sure the underlying distribution is secure. As a result, investors should seek a balance between yield and safety when it comes to MLPs.
The following 3 master limited partnerships have high yields above 5% and can grow their distributions over time.
Enterprise Products Partners (EPD)
Enterprise Products Partners (NYSE:EPD) is a midstream oil and gas storage and transportation company. Enterprise Products has a tremendous asset base which consists of nearly 50,000 miles of natural gas, natural gas liquids, crude oil, and refined products pipelines. It also has storage capacity of more than 250 million barrels.
Enterprise Products Partners reported its Q4 2023 financial results on Feb. 1, 2024. The company announced adjusted earnings per limited partner unit of 72 cents, up 10.7% from the same quarter the previous year.
This achievement was driven by robust operating margins from its fee-based businesses and improved margins in its propylene and octane enhancement businesses. During the quarter, Enterprise Products Partners experienced a significant increase in pipeline volumes across NGL, crude oil, refined products, and petrochemicals, totaling 7.8 million barrels per day (bpd), up from 6.9 million bpd in the same quarter of the previous year.
In terms of safety, Enterprise Products Partners is one of the strongest midstream MLPs. It has credit ratings of BBB+ from Standard & Poor’s and Baa1 from Moody’s. It also has a distribution coverage ratio of nearly 2x, leaving room for distribution increases and unit repurchases. Enterprise Products’ high-quality assets generate strong cash flow, even in recessions.
As a result, Enterprise Products has been able to raise its distribution to unitholders for 26 years in a row. EPD currently yields 7.1%.
MPLX (MPLX)
MPLX (NYSE:MPLX) is another midstream MLP that operates in two segments. Its first segment is Logistics and Storage, which relates to crude oil and refined petroleum products. The second segment is Gathering and Processing, which stores and transports natural gas and natural gas liquids (NGLs).
MPLX generated steady growth in 2023. In late January, MPLX reported financial results for the fourth quarter of fiscal 2023. Adjusted EBITDA and distributable cash flow per share grew 12% and 9%, respectively, over the prior year’s quarter. This was primarily thanks to higher tariff rates, but also thanks to increased oil and gas volumes. MPLX maintained a healthy consolidated debt to adjusted EBITDA ratio of 3.3x and a solid distribution coverage ratio of 1.6x.
The company has had strong distribution metrics in recent years. In the last five years, MPLX’s distribution coverage ratio has not fallen below 1.46x at a minimum. Meanwhile, the company’s total debt to adjusted EBITDA has been generally under 4x over the past five years, which indicates a manageable level of debt.
With a distribution payout ratio of approximately 63% expected for 2024, the distribution payout of MPLX appears to be secure. MPLX has increased its payout for 11 consecutive years and units currently yield 8.3%.
Brookfield Infrastructure Partners (BIP)
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is one of the largest global owners and operators of infrastructure networks, which includes operations in sectors such as energy, water, freight, passengers, and data. Brookfield Infrastructure Partners is one of multiple publicly-traded listed companies under Brookfield Corporation (NYSE:BN).
BIP reported solid Q4 and full-year 2023 results in February. For the year, funds from operations (FFO) rose 9.6% to $2.3 billion, while FFO per unit rose 8.9% to $2.95. It was business as usual for BIP. Organic growth was 8%, reflecting strong inflation in the countries it operates in, volume growth across the majority of its essential infrastructure networks, and the commissioning of roughly $1 billion of new capital projects that are now contributing to earnings.
Furthermore, it deployed over $2 billion into new investments in the second half of the year that favorably impacted results. The utility stock also increased its quarterly cash distribution by 5.9% to 40.5 cents, equating to an annual payout of $1.62 per unit.
Brookfield’s future growth will be driven in part by new investments. From 2021-2023, BIP invested $7 billion in new investments. The utility expects to generate proceeds of $2 billion per year from its capital recycling program. BIP targets an FFO growth rate of 5%-9%.
Stable FFO and a sustainable payout ratio leads to a secure dividend. BIP has increased its dividend for 15 consecutive years and units currently yield 5.4%.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
