This 8.9%-Yielding Dividend Stock Is Growing Surprisingly Fast (and Just Added More Fuel to Its Tank)

MPLX (MPLX 1.21%) recently closed the books on 2023. It was another very strong year for the master limited partnership (MLP). The energy midstream company grew its earnings and cash flow at a high-single-digit rate. That’s a surprisingly fast pace for a company with such a high yield (recently around 8.9%). Its strong growth gave it the fuel to increase its payout by 10% for the second straight year.

That big-time payout is on a very firm foundation. Meanwhile, the MLP has plenty of fuel to continue increasing it, especially after recently buying out a joint venture partner to enhance its Permian Basin growth strategy. These factors make MPLX a compelling option for those seeking a growing income stream.

An excellent year

MPLX generated nearly $6.3 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023. That was almost 9% above 2022’s total. Meanwhile, the MLP’s distributable cash flow rose by over 7% to $5.3 billion. That was enough money to cover the company’s big-time payout by a comfy 1.6 times, even after factoring in the 10% increase.

The company used that excess cash to fund its capital expenses, which totaled about $1.2 billion last year. It covered that spending level with more than $800 million to spare. That enabled the MLP to maintain a very strong balance sheet. It ended the year with $1 billion in cash and a 3.3 times leverage ratio, well below the 4 times level its stable business can support.

MPLX’s strong coverage and leverage ratios put its high-yielding payout on a very firm foundation. They also give the MLP lots of flexibility to return additional capital to investors through share repurchases and opportunistically make acquisitions.

Plenty of fuel still in the tank

The MLP recently capitalized on an acquisition opportunity. In December, it bought out the remaining 40% interest in a gathering and processing joint venture in the Permian Basin from its partner for $270 million. That acquisition advances its growth strategy in that key region. It will also supply MPLX with incremental cash flow in 2024 and beyond.

In addition to the fuel from that acquisition, MPLX expects to continue benefiting from its organic expansion strategy. The MLP anticipates investing $950 million into growth capital projects this year while spending another $150 million on maintenance projects. Those expansion projects will help address the bottleneck in its logistics and storage assets and expand its gathering and processing capacity.

The company expects to finish its Agua Dulce Corpus Christi (ADCC) pipeline lateral in the third quarter. Meanwhile, it’s also expanding its BANGL joint venture pipeline, which it expects will be in service in the second half of next year. In addition, MPLX is building two more natural gas gathering plants in the Permian Basin. The first plant should enter service in the second quarter of this year, followed by the second one in the second half of 2025. It’s also building another plant in the Marcellus that should start up by the end of the current quarter.

These expansion projects will fuel its growth over the next two years. They’ll grow its earnings and cash flow while lowering its leverage ratio. That will put its distribution on an even firmer foundation while giving the MLP the fuel to continue increasing that big-time payout. Meanwhile, its strong financial profile will continue to give it the flexibility to be opportunistic in repurchasing units or making additional acquisitions to further enhance value for investors.

A top-notch income stock

MPLX is coming off another strong year. It enters 2024 in an excellent position, given its strong financials and visible growth profile. The company should have plenty of fuel to continue increasing its monster distribution. That makes it an ideal option for those seeking an attractive and growing income stream.

Matthew 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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