Image source: Getty Images.

There are many companies out there with higher dividend yields than Magellan Midstream Partners (NYSE:MMP) today, but that doesn't necessarily mean that they are better dividends. What makes Magellan's dividend so hard to beat is it has the combination of decent yield and potential for payout growth in the future. Based on those qualities, it's hard to pick companies that can top Magellan. There are, however, two that share some very similar characteristics but have slightly higher payouts: Enterprise Products Partners (NYSE:EPD) and Holly Energy Partners (NYSE:HEP)

Let's take a look at what makes Magellan's dividend a great one in the first place and why Enterprise Products Partners and Holly Energy Partners look to have slightly better dividends. 

Why Magellan's dividend is so hard to beat

Many of the companies with higher yields than Magellan, especially those in the energy infrastructure business, are turning into a bit of a problem that could stall payments for some time. Namely, trouble accessing cheap capital. Most companies in this industry rely heavily on raising capital through debt or equity to pay for new construction projects. When dividend yields get too high, though, it becomes prohibitively expensive to issue new shares. Conversely, companies can only raise so much through debt before impacting credit ratings, borrowing rates, and the amount of cash going out the door each quarter in interest payments. 

Magellan has avoided this problem in large part because its growth plans have been a bit more modest than others, and it has deliberately retained more cash from operations to pay for development rather than remain wholly reliant on the capital markets. Even though it is a more measured approach that has ensured a more sustainable payout long term, it has still produced strong growth. Every quarter since it IPO'd in 2001, management has raised the payout that has resulted in a 13% annual distribution growth. 

Image source: Magellan Midstream Partners.

The candidates

Both Enterprise Products Partners' and Holly Energy Partners' dividends look slightly better than Magellan's because they both share the same characteristics as Magellan in terms of managing the balance between maintaining a strong balance sheet, growing the business, and rewarding shareholders with ever-increasing dividends.

A major achievement for master limited partnerships is getting that investment-grade rating. Investment-grade ratings mean that each can issue debt at lower interest rates than its peers. Magellan has a BBB credit rating, while Enterprise has a BBB+ rating and Holly Energy Partners debts have ratings ranging from BB+ to BBB. These high marks mean creditors have a lot of faith in each company's business models over the long term and don't see a major conflict with their debt obligations and their payout to shareholders. Also, the three look to maintain debt levels that are manageable based on their earnings power. 

CompanyNet Debt to EBITDA
Magellan Midstream Partners 3.5x
Enterprise Products Partners 4.7x 
Holly Energy Partners 4.1x

Data source: S&P Global Market Intelligence.

It should also be noted that both Enterprise and Holly are working on pretty impressive streaks of consecutive quarterly payout raises as well. Enterprise is now on its 48th consecutive quarter and Holly is on its 47th straight quarterly raise. Based on the growth projects in the wings for these companies as well as the cash cushion between their payouts and cash-generating abilities, it looks like these streaks should remain intact for a while longer.

MMP Dividend Chart

MMP Dividend data by YCharts.

What give Enterprise and Holly slight nods over Magellan are their yields. Today, shares of Enterprise are sporting a distribution yield of 6% while Holly Energy Partners stock currently sports a 6.9% yield. If investors are looking for a little more yield than what Magellan has to offer, then these two look like solid alternatives. 

What a Fool believes

Overall, Magellan Midstream Partners is a solid dividend investment for those looking for income today or for those looking to build wealth over time through reinvested dividends. Enterprise Products Partners and Holly Energy Partners share many of the same qualities that make Magellan a great investment and provide just a little bit more yield. It's hard to see anyone going wrong with an investment in any of these three stocks today. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.