While the stock market was blistering hot last year, the energy sector was left out in the cold. In fact, the average energy master limited partnership (MLP) declined 14.4% last year, vastly underperforming both oil prices and the S&P 500. That said, while 2017 was a down one for most MLPs, it was an incredible year for Noble Midstream Partners (NYSE:NBLX), which was one of the best performers in the sector.

Though last year's 38.9% gain will be hard to repeat in 2018, Noble Midstream still has plenty of growth left in the tank. Investors can expect the company to continue rapidly increasing its distribution, which could help it deliver market-beating total returns in the coming years.

A hand placing a coin on a stack of coins.

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Rookie of the year

Last year was Noble Midstream Partners' first full one as a public partnership after having completed its IPO in September 2016. Its parent company, oil and gas producer Noble Energy (NYSE:NBL), initially seeded the MLP with some of its midstream infrastructure assets in the U.S. to provide it with an expandable platform. Noble Midstream quickly got to work growing that base in early 2017, joining forces in February with oil pipeline giant Plains All American Pipeline (NYSE:PAA) in a 50-50 joint venture to acquire the Advantage Pipeline for $133 million. Not only did the deal provide Noble Midstream with another income stream, but it helped link Noble Energy's growing oil production in the Delaware Basin to Plain's premier pipeline network.

However, that deal was just the beginning. In April, Noble Energy agreed to dedicate some recently acquired acreage in Texas to Noble Midstream's system, which would enable the company to build out the infrastructure needed to connect future wells to its network. In June, Noble Midstream signed an agreement with Noble Energy to increase its interest in two midstream systems for $270 million.

These deals helped fuel significant cash flow and distribution growth for Noble Midstream last year. After generating $25.3 million in distributable cash flow (DCF) in 2016, the company was on pace to produce $134 million to $140 million in DCF last year. That enabled the company to grow its distribution by 20% while maintaining a very conservative coverage ratio of more than 2.0 times. Because of that, the MLP's 3.4% payout is on a firm foundation.

A pipeline in a ditch at a construction site.

Image source: Getty Images.

Topping off the tank

While 2017 was an incredible year for Noble Midstream, 2018 could be just as good. That's because the company ended last year with a bang by joining forces with private equity-backed Greenfield Midstream to form a 50-50 joint venture to acquire the Saddle Butte Rockies Midstream system for $625 million. That deal will significantly expand the company's operations in the DJ Basin while diversifying its customer base, since PDC Energy (NASDAQ:PDCE) is the top user of that system. Furthermore, PDC Energy said that it would expand the acreage it dedicates to the system, and extend its contract by another five years, bringing the total duration up to 12 years. That will provide Noble Midstream with a growing income stream from this system for more than a decade.

This transaction will also provide an immediate boost to cash flow this year, supporting the company's ability to increase its distribution to investors by 20%. In addition to that, it helps extend that growth rate beyond the company's current forecast that it could keep up that pace through 2020. 

Another driver of Noble Midstream's rapidly growing distribution is the considerable runway of organic expansion projects it has across its current midstream systems. In addition to that, the company has the financial resources to keep making acquisitions. For starters, it's retaining more than half its cash flow to help finance growth, and it ended the third quarter with a minuscule leverage ratio of 1.1. While leverage will rise after Noble Midstream closes the Saddle Butte deal, it will still have ample debt capacity to make acquisitions. Furthermore, after last year's top-tier performance, investors currently value the company's equity at a premium to other MLPs, which makes it easier to issue new units to help finance deals. These future transactions will likely be a combination of third-party deals like the partnership with Plains All American Pipeline to enhance its current operations as well as additional dropdowns with Noble Energy.

Big-time total return potential

Noble Midstream had an incredible rookie year, which sets it up to keep growing at a fast pace for the next several years. As a result, it doesn't look like this MLP will have a sophomore slump. Instead, it appears poised to provide investors with a fast-growing income stream along with an increasing valuation, which could fuel market-beating total returns in the coming years, making it a great income-growth stock to consider owning for the long haul.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.