Holly Energy Partners LP (NYSE:HEP) appears to be an appealing option for income seekers. Not only does the master limited partnership (MLP) currently yield an attractive 8%, but the company has also increased its payout for 55 straight quarters.

However, three factors could make it hard for Holly Energy Partners to continue growing its payout. The company has a tight distribution coverage ratio and elevated leverage compared to its peers, and doesn't have much visible growth on the horizon.

Because of those factors, income investors might want to forget about Holly Energy Partners and consider Antero Midstream Partners (NYSE:AM) or Noble Midstream Partners (NYSE:NBLX) instead, since they have stronger financial profiles and much more visible growth.

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Better on nearly all fronts

Holly Energy Partners currently expects to grow its distribution by 4% this year, which is a bit aggressive since the company will pay out virtually all its cash flow to support that higher payout. That's one reason it's unclear if the company can keep growing much longer. Another is that the MLP doesn't have much growth ahead other than a small refined products pipeline in the Permian Basin that it could build next year if it gets enough commercial support.

Meanwhile, with a tight 1.0 distribution coverage ratio and an elevated leverage ratio of 4.2 times debt-to-EBITDA, Holly Energy Partners doesn't have a lot of financial flexibility, which could affect its ability to pursue additional expansion opportunities.

Contrast that minimal visibility into future growth with the outlook of Antero Midstream. This MLP has already identified $2.7 billion of high-return growth projects that it expects to complete over the next five years. Those expansions should provide the company with enough fuel to increase its distribution by a 28% to 30% compound annual growth rate through 2020, and at a 20% annual rate in 2021 and 2022. Further, the company expects to generate enough cash to cover that payout by a very comfortable 1.25 times through 2020 and by more than 1.1 times after that, while maintaining a leverage ratio of less than 2.5 times debt-to-EBITDA. While Antero Midstream's current yield of 5.5% is less than Holly Energy Partners' payout, its higher-octane growth rate should enable it to produce a stronger total return in the coming years.

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Visible growth with ample upside

Noble Midstream Partners has many of the same characteristics as Antero Midstream. The company anticipates that it will generate enough cash to cover its 5.8%-yielding payout very comfortably by more than 2.0 times this year. Furthermore, the company expects to end the year with a leverage ratio of just 2.8 times debt-to-EBITDA. Because of those factors, Noble Midstream has the financial resources to continue expanding its energy midstream footprint at a brisk pace.

The company currently expects to generate enough cash to increase its distribution to investors at a 20% annual rate through 2022, while maintaining a coverage ratio of more than 1.3 times. And the company sees its leverage ratio steadily falling to below 2.0 times by 2021.

Noble Midstream noted that there's ample upside to that outlook, since it could acquire midstream assets currently owned by its oil and gas producing parent Noble Energy (NYSE:NBL) as well as from third parties. For example, Noble Energy received an option to purchase a 15% stake in the EPIC NGL pipeline currently under construction when it committed to be a shipper on the project. Noble Energy assigned that option to Noble Midstream, which can exercise it next year. If it does buy that stake, or make other acquisitions, those deals will add more fuel to its distribution growth engine.  

Much brighter futures

While Holly Energy Partners has been a great income stock over the years, it's unclear whether the company can keep it up in the future. That's why investors should look past its 8% yield and consider Antero Midstream or Noble Midstream instead, since they have lined up enough expansion projects to grow their 5%-plus yielding payouts at high rates for the next several years. And they can do so while maintaining much stronger financial metrics than Holly Energy, which makes them better options over 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.