Summary
MPLX maintains a high quality asset base and has the backing of Marathon Petroleum as its key customer.
It has seen pipeline volume growth, and is benefiting from higher NGL prices.
Meanwhile, MPLX maintains a strong balance sheet. Management is focused on share buybacks and the distribution is well-covered.
Looking for more investing ideas like this one? Get them exclusively at Hoya Capital Income Builder. Learn More »
ansonsaw/E+ via Getty Images Capital gains are nice, but it’s income investments that pay the bills. Investors today are fortunate in that they have big menu of high-yielding asset classes to choose from. This includes REITs, BDCs, and MLPs, which have favorable tax structures that enable them to pay higher yields to their shareholders/unitholders.
I see value names in all three of these asset classes, and in this article, I’m focused on the high-yielding stock, MPLX (NYSE: MPLX ). MPLX flies mostly under the radar, as peer MLPs Enterprise Products Partners (NYSE: EPD ), Energy Transfer (NYSE: ET ), and Magellan Midstream (NYSE: MMP ) get most of the attention. Yet, it throws off the highest yield of this group. I highlight what makes MPLX a potentially great choice for high income and growth, so let’s get started. Swim In Cash With This MLP
MPLX is a diversified MLP (issues schedule K-1) that owns and operates pipelines and gathering and processing facilities with focus in the Appalachia region. Its assets include a network of crude oil and refined product pipelines, an inland marine business, docks, and NGL processing and fractionation facilities in key U.S. supply basins.
It was formed in 2012 by Marathon Petroleum Corporation (NYSE: MPC ), which continues to hold a significant equity interest in the company and acts as its general partner. As such, many of MPLX’s pipelines were essentially built to solely serve Marathon Petroleum. This helps to lock in a certain level of stability for MPLX through fee income, with MPC as its primary customer.
MPLX has demonstrated strong operational resiliency this year, with adjusted EBITDA growth of 6.7% YoY on YTD basis (nine months ended September 30 th ) to $4.1B, and by 4% YoY during the third quarter, to $1.39B. This was driven by robust volume growth of 12% and 28% across MPLX’s crude and refined products pipelines, respectively.
In addition, lower NGL processing and fractionation volumes were more than offset by higher NGL prices, resulting in 9.7% adjusted EBITDA growth for the gathering & processing segment, as seen below. (Source: Investor Presentation )
MPLX’s well-placed asset base continues to demonstrate low-risk, as the pipeline system has 100% of its contractual capacity committed with long-term minimum volume commitments. Looking forward, MPLX should see EBITDA growth from the Whistler Natural Gas pipeline, which it has a 38% ownership interest.
This asset was placed into service in the middle of this year, and will continue to ramp up through next year, with the expectation of providing 2 billion cubic feet per day of incremental natural gas transport capacity to the Gulf Coast markets from the Permian Basin.
Morningstar assigns MPLX a Narrow moat rating, and sees plenty of opportunities for the company to unlock value, as noted below in its recent analyst report: “We like MPLX’s portfolio of refining and Appalachian-based gathering and processing assets, given the propensity for fee-for-capacity and minimum volume commitment contracts, which present a highly secure stream of income over the long run. Further, MPLX still has plenty of opportunities to unlock within its newly enlarged portfolio of assets following dropdowns from its parent and the Andeavor Logistics deal, which has taken the partnership to $5.45 billion in expected 2021 EBITDA compared with just over $550 million in 2015. We expect MPLX to generate over $700 million in excess cash flow after capital spending and distributions in 2021, and the management team has prioritized unit buybacks.” – Morningstar MPLX has also been more aggressive in repurchasing units than Enterprise Products Partners. So far this year (through end of Q3), MPLX has repurchased $465M worth of units. This equates to a 1.7% reduction in the number of units, from 1,039M units at the start of the year to 1,021M units as of the end of September.
Meanwhile, MPLX maintains a strong balance sheet, with a net debt to adjusted EBITDA ratio of 3.7x, which is close to the 3.5x benchmark that I use for high-quality midstream companies. The dividend is also well-covered, with a 1.61x adjusted distribution coverage ratio.
At the forward yield of 9.4%, MPLX’s distribution yield is meaningfully […]
Protected by Patchstack