Magellan Midstream Partners, L.P. (NYSE:MMP) offers investors a robust 5.1% distribution yield. That's backed up by 17 years' worth of annual distribution increases. With the broader market offering up a yield of just 2% (or so), those two facts should draw your attention. But you have to dig a little deeper to see the real reason to love high-yielding Magellan Midstream Partners, L.P. over other oil and gas midstream partnerships.    

Impressive records

Magellan's dividend record is impressive. But it isn't the most impressive in the midstream oil and natural gas industry. For example, industry giant Enterprise Products Partners L.P. (NYSE:EPD) has increased its distribution every year for 20 years. Likewise, Buckeye Partners, L.P. (NYSE:BPL) has done the same for 22 years.    

A man turning valves on a gas pipeline

Image source: Getty Images.

Now add to that the fact that Enterprise's distribution yield is 6.4%, more than a full percentage point higher than Magellan's yield. Buckeye's yield, meanwhile, is around 9%. That's roughly 4 percentage points higher. If the length of the streak and the size of the yield were the only two factors you considered, both Enterprise and Buckeye would be better options than Magellan.

A deeper dive

Which is why it's so important to look a little deeper. For example, Enterprise is an industry giant with a market cap of $56 billion. It has around $9 billion worth of growth spending planned, but that just speaks to the scale of the company. It needs to invest huge amounts if it wants to keep growing and increasing the distribution. Magellan is a much more manageable $16 billion or so. It has around $1 billion in growth projects in the works and can take on smaller projects that wouldn't be worth Enterprise's effort. In other words, growth is likely to be easier for Magellan.

BPL Chart

BPL data by YCharts.

In the meantime, Buckeye has a materially higher yield but had distribution coverage of 0.95 times in the second quarter. To put it simply, it isn't currently covering its distribution. It's fallen short of 1 before, too, often for a year or more in an effort to expand its business. Magellan expects to cover its distribution by 1.2 times in each of the next three full calendar years despite $1 billion worth of spending. With that backdrop, it makes sense that investors would be avoiding Buckeye as it falls short of covering its distribution, pushing the yield higher than what Magellan is offering.

More to the story

A relatively modest size and solid distribution coverage are two good reasons to love Magellan, but they really lead to the third and real, reason: growth. That is, distribution growth, not business growth. In this case, however, it's not the number of years that growth has occurred -- it's the growth in the distribution on an annualized basis.

BPL Dividend Per Share (Quarterly) Chart

BPL Dividend Per Share (Quarterly) data by YCharts.

Over the trailing 10 years, Magellan's distribution has grown at an annualized rate of 11%. That's more than three times the historical rate of inflation growth. It's also 5 percentage points higher than the 5.9% annualized growth rate at Enterprise over that span -- and more than double Buckeye's 4.8% growth rate over the past decade.   

A big piece of the equation here is Magellan's conservative finances. Instead of leveraging up, leading to materially higher interest payments, it has remained disciplined, allowing the benefits of its growth spending to flow through to unitholders. To put some numbers on this, Magellan's debt to EBITDA ratio is around 3.4 compared to the roughly 4.4 times that Enterprise and Buckeye sit at. And it's no coincidence that Magellan has been at the low end of this trio for over a decade.    

To be fair, there are reasons some investors might want to own slow-and-steady Enterprise Products Partners or higher-risk Buckeye Partners. But if what you are really looking for is an investment that will grow your buying power over time, then Magellan is the better option here. And that is the real reason to love Magellan Midstream Partners, L.P. But you'll only see that if you dig a little deeper than yield and streak length.

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.