MPLX (NYSE: MPLX) often flies under the radar, but its track record speaks volumes. As a master limited partnership (MLP), it has consistently delivered exceptional passive income returns since its inception over a decade ago. With a remarkable track record of annual distribution increases, totaling over 380%, MPLX stands out as a reliable income generator.
Currently boasting an impressive distribution yield of 8.3%, MPLX far surpasses the S&P 500’s 1.4% dividend yield. This substantial payout is supported by a robust financial foundation, underlining the company’s stability. Coupled with its visible growth prospects, MPLX is poised to sustain its significant passive income stream. This makes it an attractive choice for investors seeking a steady uptrend in cash flow, albeit with an awareness of the potential tax implications associated with MLP investments, such as receiving a Schedule K-1 instead of a Form 1099-DIV annually.
A financial fortress
In its recent first-quarter report, MPLX showcased its continued prowess in generating robust and resilient cash flow. The midstream powerhouse delivered nearly $1.4 billion in distributable cash flow for the period, marking an 8% increase compared to the same quarter last year. Impressively, this cash flow was sufficient to comfortably cover the company’s generous distribution, with a coverage ratio of 1.6 times, matching the year-ago level despite a 10% increase in the payout late last year.
During the first quarter, MPLX allocated $951 million in cash to investors, encompassing distributions and $75 million in unit repurchases, while retaining the remainder to fuel organic expansion initiatives ($259 million for the quarter) and strategic acquisitions.
Expanding its footprint in the Utica region, MPLX acquired additional ownership stakes in existing joint ventures (JVs) and a dry gas gathering system for $625 million during the quarter. This follows a trend, as the company had also acquired full ownership of a gathering and processing JV in the Permian Basin for $270 million in the previous quarter. These acquisitions are expected to contribute incremental cash flow throughout the year.
Despite these growth investments, MPLX maintained a robust financial position, boasting a leverage ratio of 3.2 times at the end of the period, an improvement from 3.5 times in the year-ago period. Moreover, this leverage ratio remains comfortably below the 4.0 times level supported by its stable cash flows. With substantial liquidity of $385 million in cash and approximately $3.5 billion in available credit at the end of the first quarter, MPLX possesses significant financial flexibility to seize future investment opportunities.
More growth is coming down the pipeline
MPLX anticipates investing approximately $950 million into growth capital projects this year, with several initiatives already underway. Among these projects is the construction of the Agua Dulce Corpus Christi Pipeline (ADCC) lateral, slated to commence operations in the third quarter. Additionally, MPLX is enhancing the capacity of its BANGL JV pipeline, with completion expected in the first half of next year.
Furthermore, MPLX is actively constructing multiple natural gas processing plants, with one facility already operational last quarter, another nearing start-up, and a third projected to come online in the latter half of next year. These endeavors are poised to bolster MPLX’s income stream upon completion.
In a bid to fortify its long-term growth trajectory, MPLX and its partners are enlarging a JV by merging their Whistler Pipeline with Enbridge’s Rio Bravo Pipeline project. The JV’s closure is anticipated in the second quarter, with Rio Bravo slated for service in the latter half of 2026. This pipeline will connect gas supplies to a liquefied natural gas (LNG) export terminal presently under construction, presenting a substantial growth avenue. Enbridge’s contribution of $350 million in cash to the JV, along with funding for the initial $150 million of Rio Bravo’s expenses, will alleviate MPLX’s immediate capital requirements.
Bolstered by its financial flexibility, MPLX is well-positioned to pursue new growth capital projects and acquisitions. These future investments are poised to provide additional momentum to increase distributions.
A powerful passive income producer
MPLX remains steadfast in generating resilient and expanding cash flow, providing ample resources to sustain an enticing and progressive distribution while simultaneously fueling operational expansion. Recent completions of expansion projects and strategic acquisitions promise incremental near-term cash-flow growth, while the impending enhancement of its joint venture (JV) stands to bolster its long-term growth prospects. Coupled with its robust financial underpinning, MPLX appears well-positioned to sustain the upward trajectory of its substantial distribution.
