The S&P 500 Index has an average dividend yield below 1.5% right now. This makes it hard for income investors to find high dividend yields in the stock market.
However, Master Limited Partnerships remain attractive for income.
In this article, we will analyze the prospects of three high-quality Master Limited Partnerships from our MLP list, which have high yields above 5% right now.
MPLX, LP (MPLX)
MPLX is a diversified, large-cap MLP which was formed by Marathon Petroleum (MPC) in 2012. It owns and operates midstream energy infrastructure and logistics assets, and provides fuels distribution services.
It operates in two segments: Logistics and Storage, which involves the transportation and storage of crude oil and refined products, and Gathering & Processing, which is related to natural gas and natural gas liquids (NGLs).
In early August, MPLX reported (8/6/24) financial results for the second quarter of fiscal 2024. Adjusted EBITDA and distributable cash flow (DCF) per share grew 8% and 7%, respectively, over the prior year’s quarter, primarily thanks to higher tariff rates and increased gas volumes. MPLX maintained a healthy consolidated debt to adjusted EBITDA ratio of 3.4x and a solid distribution coverage ratio of 1.6.
Moreover, MPLX is currently offering a 7.7% distribution yield. Given the strong distribution coverage ratio of 1.6 and its healthy leverage ratio, its distribution should be viewed as safe, particularly given its robust business model.
Plains All American (PAA)
Plains All American Pipeline, L.P. is a midstream energy infrastructure provider. The company owns an extensive network of pipeline transportation, terminaling, storage, and gathering assets in key crude oil and natural gas liquids-producing basins at major market hubs in the United States and Canada. On average, it handles more than 7 million barrels per day of crude oil and NGL through 18,370 miles of active pipelines and gathering systems. Plains All American generates around $40 billion in annual revenues and is based in Houston, Texas.
On August 2nd, 2024, Plains All American reported its Q2 results for the period ending June 30th, 2024. For the quarter, revenues came in at $12.9 billion, up 11.5% compared to last year. Adjusted EBITDA from crude oil increased by 9% year-over-year, primarily due to higher tariff volumes on our pipelines, tariff escalations and contributions from acquisitions. These items were partially offset by fewer market-based opportunities.
Adjusted EBITDA from NGL increased 52% year-over-year results primarily due to turnarounds impacting sales volumes last year and incremental margins from iso-to-normal butane spread benefits this time around. Thus, adjusted EBITDA totaled $467 million for the quarter, up 15% compared to Q2 2023. Distributable cash flows (DCF) rose by five cents to $0.58 on a per-unit basis. Management raised the partnership’s full-year 2024 guidance, expecting adjusted EBITDA to be between $2.725 and $2.775
PAA’s payout ratio is currently sitting at relatively comfortable levels of 65%. PAA stock currently yields 7.0%.
Sunoco LP (SUN)
Sunoco is a master limited partnership that distributes a range of fuel products through its wholesale and retail business units. The wholesale unit purchases fuel products from refiners and sells those products to both its own and independently owned dealers. Sunoco was founded in 2012 and is headquartered in Dallas, Texas.
Sunoco reported its second quarter earnings results on August 7. The company reported that its revenues totaled $6.2 billion during the quarter, which was 7% more than the revenues that Sunoco generated during the previous year’s quarter. This was a better year-over-year performance compared to the previous quarter.
Fuel prices are mostly a flow through item for Sunoco, since Sunoco’s costs increase as well when fuel prices rise. Revenue changes thus do not necessarily impact profits to a large degree, although margins vary from quarter to quarter. Sunoco reported that its adjusted EBITDA was up 28% year over year, improving to $320 million during the quarter.
Sunoco’s distributable cash flows totaled $295 million during the quarter, which was higher compared to the previous year’s quarter, and which equated to DCF of $2.19 per share, which covered the dividend easily. For 2024, Sunoco is forecasting EBITDA of $1.46 billion to $1.52 billion to account for the acquisition of NuStar Energy.
Sunoco’s dividend payout ratio has moved in a wide range throughout its existence, as its cash flow has seen steep ups and downs. The company has never cut its distribution.
The current yield of around 6.6% provides more than ample income. Sunoco has covered its dividend payout by a factor of 1.9 via distributable cash flows during the last 4 quarters, thus the dividend looks sustainable.
Disclosure: No positions in any securities mentioned
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.