MPLX (MPLX -0.34%) doesn't get the credit it deserves. The master limited partnership (MLP) has been a top-notch passive income producer since its formation over a decade ago. The midstream company has increased its payment every year, growing it by over 380%.
The MLP currently offers an 8.3% distribution yield, putting it several times higher than the S&P 500's 1.4% dividend yield. That prodigious payout is on an extremely firm financial foundation. Because of that and the pipeline company's visible growth prospects, it should have plenty of fuel to continue growing its big-time passive income stream. That makes it an ideal option for those seeking steadily rising cash flow and who are comfortable with the potential tax implications of investing in MLPs (such as their sending a Schedule K-1 each year instead of a Form 1099-DIV).
A financial fortress
MPLX recently reported its first-quarter results. The midstream giant continues to generate strong, durable cash flow. It produced nearly $1.4 billion in distributable cash flow in the period, an 8% increase from last year's first quarter. It was enough cash to cover the company's lucrative distribution by a comfy 1.6 times. That matches the year-ago coverage ratio even though the company boosted its payout by 10% late last year.
The MLP returned $951 million in cash to investors during the first quarter. That included distributions and $75 million worth of unit repurchases. The company retained the rest to fund organic expansion projects ($259 million in the quarter) and acquisitions.
The MLP enhanced its Utica footprint by acquiring an additional ownership interest in existing joint ventures (JVs) and a dry gas gathering system for $625 million during the quarter. That was the second straight quarter where it bought out a partner's interest in a JV (MPLX also bought the remaining 40% interest in a gathering and processing JV in the Permian Basin for $270 million in the fourth quarter). Those acquisitions will supply it with some incremental cash flow this year.
MPLX maintained a strong financial position even after all those growth investments. It ended the period with a 3.2 times leverage ratio. That's an improvement from 3.5 times in the year-ago period. It's also well below the 4.0 times level its stable cash flows could support. The company also has significant liquidity. It ended the first quarter with $385 million of cash and about $3.5 billion of available credit. That gives it tremendous financial flexibility to capitalize on future investment opportunities.
More growth is coming down the pipeline
The MLP expects to invest about $950 million into growth capital projects this year. It has several projects currently under construction. The company and its partners are building the Agua Dulce Corpus Christi Pipeline (ADCC) lateral, which should enter service in the third quarter. It's also expanding the capacity of its BANGL JV pipeline, which should wrap up in the first half of next year.
MPLX is also building several additional natural gas processing plants. One facility entered service last quarter, another is approaching start-up, and a third should come online in the second half of next year. These projects will supply MPLX with incremental income when they come online.
MPLX is in the process of enhancing its long-term growth outlook. The company and its partners are expanding a JV by combining their Whistler Pipeline and Enbridge's Rio Bravo Pipeline project. They expect to close that JV in the second quarter.
Rio Bravo will connect gas supplies to a liquefied natural gas (LNG) export terminal currently under construction. That pipeline should enter service in the second half of 2026. The addition of that pipeline project provides another visible growth driver while increasing future expansion opportunities for Whistler and ADCC. Enbridge is contributing $350 million in cash to the JV and funding the first $150 million of Rio Bravo's cost, which will also help reduce MPLX's near-term capital requirements.
The MLP has the financial flexibility to pursue new growth capital projects and make acquisitions. Future investments would help supply additional fuel to increase the distribution.
A powerful passive income producer
MLPX continues to produce durable, growing cash flow. That's giving it the money to pay an attractive and growing distribution while continuing to invest in expanding its operations. Recently completed expansion projects and acquisitions will supply it with incremental near-term cash-flow growth, while its upcoming JV enhancement will improve its long-term growth outlook. Add in its strong financial foundation, and MPLX should have no problem continuing to increase its hefty distribution.
