Noble Midstream Partners (NYSE:NBLX) is one of more than a half dozen midstream master limited partnerships (MLPs) formed in recent years by exploration and production (E&P) companies to facilitate their growth. However, while Noble Midstream shares a similar heritage with these peers, it's in a league of its own when it comes to financial strength and distribution growth potential. That makes it quite a compelling option for investors seeking both growth and income.

Leading the pack

Noble Midstream highlighted what sets it apart from its peer group in a recent investor presentation by comparing its financial metrics and outlook to those of seven E&P-backed MLPs:

A chart comparing Noble Midstream Partners with several peers across 5 categories: distribution growth, DCF coverage, leverage, CAGR over 20%, and 5-year outlook.

Image source: Noble Midstream Partners investor presentation.

As that chart shows, only one competitor came close. While Noble Midstream didn't specify which one it was, some digging uncovered that only Antero Midstream Partners (NYSE:AM) checks off the same boxes as "Peer A" in the chart. (The only category it's missing is distributable cash flow (DCF) coverage.) While Noble Midstream anticipates covering its payout by 1.9 to 2.1 times this year, Antero Midstream expects coverage to be between 1.25 and 1.35 which is still well above the 1.2 average of the group. It's also worth noting that Antero Midstream plans to grow its distribution per unit (DPU) at a 28% to 30% annual rate through 2020, which is above Noble Midstream's 20% compound annual growth rate (CAGR).

Notably, only three other MLPs in its peer group had checkmarks on that comparison chart. CNX Midstream (NYSE:CNXM) is the only other company that has enough long-term visibility to offer a five-year outlook, while Oasis Midstream Partners (NYSE:OMP) and Hess Midstream Partners (NYSE:HESM) both expect their debt-to-EBITDA (leverage) ratios to be less than 2.5 this year. Several others came close, but none boasts Noble Midstream's financial strength and high level of long-term distribution growth potential, a combination which puts it at the top of the class.

Hot air balloon race with one ballon lifting higher thanks to the help of a smaller balloon.

Image source: Getty Images.

What drove it to the top

Two overarching factors enable Noble Midstream to stand out from its peers. First, the company is very young. Noble Midstream just went public in late 2016, so it's still growing into its balance sheet after starting out with a pile of cash and an undrawn credit facility. Those financial resources gave the company the financial flexibility to make acquisitions and invest in expansion projects while keeping leverage low and distribution coverage high. (Availability of financial resources also explains why recent IPOs Hess Midstream Partners and Oasis Midstream Partners have low leverage ratios compared to their peers.) 

The other factor that sets Noble Midstream apart is the sky-high returns the company is earning on expansion projects. For example, it invested less than $100 million to expand its infrastructure in the DJ Basin over the past couple of years in projects that have already yielded more than $400 million in EBITDA. Meanwhile, the company expects to earn EBITDA multiples on capital of 2.5 to 3.5 times for projects on the Black Diamond Gathering system, which it acquired last year. That's double the EBITDA multiple of most midstream expansion projects. Those high returns on capital will enable the company to grow cash flow at a rapid pace over the next few years, allowing it to increase its distribution at an above-average rate while keeping leverage low and coverage high.

A compelling option for the long term

With a current yield of 4.1%, Noble Midstream Partners should appeal to most income-seeking investors. However, what sets it apart is that the company can grow that payout at a high rate for the next several years while maintaining top-tier financial metrics. That income with upside makes it an appealing option for growth and income investors alike.

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.