This Nearly 8.5% Dividend-Yielding Equity Exhibits Sufficient Energy to Expand Its Growth Trajectory Until at least 2026
This Nearly 8.5% Dividend-Yielding Equity Exhibits Sufficient Energy to Expand Its Growth Trajectory Until at least 2026
MPLX (MPLX increasing by 2.47%) has consistently been a reliablegrower, showcasing impressive growth patterns over the years. The company has significantly invested in both organic growth projects and strategic acquisitions to expand its midstream presence. These investments have significantly benefited investors, resulting in substantial gains over time. Since its initial public offering in 2012, the master limited partnership (MLP) has consistently increased its distribution every year.
The MLP possesses the necessary resources to sustain its high-yield, whopping near 8.5% yield in the upcoming years. Let's delve into the factors backing this optimistic outlook.
Financial Stronghold
Higher-yielding dividend stocks often come with higher risks. These stocks frequently exhibit high dividend payout ratios and leverage ratios, making them vulnerable to potential dividend cuts during financial hardships. However, this is not the case with MPLX.
The MLP boasts a safe and secure business model. Its revenue streams are primarily derived from long-term, fixed-fee contracts and government-regulated rate structures, ensuring a steady cash inflow. The MLP currently possesses enough cash reserves to cover its lucrative distribution by a substantial 1.5 times, providing it with the financial flexibility to fund expansion projects and maintain a robust financial foundation.
During the first nine months of this year, MPLX generated an impressive $4.3 billion in net cash provided by operating activities, representing a 9.3% increase compared to the previous year. It invested over $1.6 billion in organic growth projects and acquisitions, leaving it with $2.6 billion in free cash flow, barely exceeding its distribution payments for the same period. MPLX smoothly covered this deficit, boasting a $2.4 billion cash balance and a 3.4 leverage ratio, significantly lower than its ability to sustain at 4.0. As a result, the MLP bought back $76 million of its units during the third quarter, bringing its year-to-date total to $226 million.
Growth Momentum
Since 2020, MPLX has experienced mid-single-digit growth in earnings and cash flow, primarily driven by organic growth projects and strategic acquisitions. This growth and its financially responsible approach have enabled it to increase its distribution by a staggering 10.7% compound annual growth rate since 2021, including a 12.5% increase for this year. As per CEO Maryann Mannen, the company's expanding portfolio is well-equipped to support this rate of annual distribution increases moving forward.
MPLX is currently engaged in various expansion projects:
- BANGL: In collaboration with its joint venture partners, MPLX is boosting the capacity of this natural gas liquids pipeline, with completion anticipated in the first quarter of 2025.
- Blackcomb and Rio Bravo: MPLX and its partners are constructing these natural gas pipelines to enhance capacity for Gulf Coast export markets. Both projects are expected to go live in the second half of 2026.
- Secretariat: MPLX is building a new natural gas processing plant in the Permian, with an expected launch in the second half of 2025. It recently completed the Preakness II plant in the region in July.
- Harmon Creek: MPLX is constructing the Harmon Creek III plant in the Marcellus, set to launch in the second half of 2026. It concluded the Harmon Creek II plant in February.
These projects will provide MPLX with growth visibility through 2026, generating additional cash flow as they become operational. They will supply MPLX with additional fuel to further increase its distribution.
Furthermore, MPLX holds ample financial flexibility to pursue strategic acquisitions when opportunities arise. For instance, in the second quarter, it acquired another 20% stake in the BANGL pipeline joint venture, and in the first quarter, it secured additional ownership interests in existing joint ventures and a dry gas gathering system for $625 million. Future acquisitions may offer it even more opportunities to boost its distribution.
Given the MPLX's impressive financial performance and ongoing expansion projects, it's a prudent decision for investors considering diversifying their portfolio by allocating some funds towards investing in MPLX stocks. The company's strong financial position, coupled with its strategic growth initiatives, is expected to continue generating money for shareholders in the future.
In light of its robust financial health and encouraging growth prospects, MPLX is potentially a lucrative choice for investors seeking financial gains through dividend-focused investments. Its sound business model, robust cash reserves, and strategically planned expansion projects make it a compelling option in the current investment landscape.