Dividends are a powerful force in fueling market-beating returns. Over the last 30 years, stocks in the S&P 500 that paid a dividend delivered a higher total annual return than the index average (9.25% vs. 7.7%), according to a study by Ned Davis Research. The biggest outperformance, however, came from companies that initiated or increased their dividends, with those stocks delivering a 10.07% total annual return versus 7.47% from steady payers.

That's why investors should pay attention to companies that can continuously grow their dividends, as that improves the probability that they can outperform the market. One company with plenty of fuel to continue increasing its payout is midstream master limited partnership (MLP) MPLX (NYSE:MPLX). That's one reason it tops my list of dividend growth stocks that I think investors should consider buying in October. 

Rising stacks of coins with growing plants on each one.

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An underappreciated transformation

MPLX has undergone a dramatic change in the past year. In February, the company completed two important strategic transactions with refining giant Marathon Petroleum (NYSE:MPC). First, the company acquired the rest of the midstream assets owned by Marathon in an $8.1 billion deal. In addition to that, the two companies simplified their relationship by eliminating the incentive distribution rights (IDRs) held by Marathon, which entitled it to a significant portion of MPLX's cash flow in a $10.1 billion deal. These transactions eliminated a costly burden, simplified its structure, and added a significant new revenue stream.

The deals have helped fuel a considerable improvement in MPLX's financial results through the first half of 2018. Distributable cash flow is up more than 77% over that timeframe. Because of that, the company has been able to increase its distribution to investors nearly 13% even as its coverage ratio has improved from 1.27 times to 1.33 times, which enabled the company to retain more cash to fund expansion projects.

However, despite that improvement in both its financial results and profile, MPLX's unit price has declined more than 2% for the year. Because of that, its distribution yield has increased to 7.3%, making it even more attractive to income seekers.

A burst of sunlight shining on a pipeline.

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The fuel to continue growing

That yield should continue rising, since MPLX has already affirmed its intention that it will increase its payout 10% for 2018, implying at least two more raises, which would bring its total to 24 since its initial public offering in late 2012. However, the company should have plenty of fuel to continue increasing its payout at a high rate for at least the next several years. Three factors drive that view.

First of all, MPLX has a growing supply of organic expansion projects in its backlog to fuel future growth. The company started the year with $2 billion of planned growth spending. However, it has since added several new projects, including starting the next phase of its evolution by participating in the development of new long-haul pipelines. These projects should come online through the end of 2020, giving it enhanced visibility into how much it can grow cash flow in the next couple of years.

On top of that, the company has a strong balance sheet, which gives it the flexibility to make outside acquisitions. The company has made a couple in recent months, buying a 10% stake in the recently finished Agua Blanca Pipeline in July and the Mt. Airy Terminal in September. That last acquisition positions the company for additional organic growth, since it could increase the site's storage capacity by 150% and add a second export dock.

Finally, the company will likely continue benefiting from its relationship with Marathon Petroleum. While MPLX bought all of Marathon's midstream assets earlier this year, the refiner recently acquired Andeavor (NYSE:ANDV), which owns some logistics assets as well as a stake in MLP Andeavor Logistics (NYSE:ANDX). Because of that, Marathon could eventually drop those assets down to its MLP as well as combine Andeavor Logistics with MPLX. Those transactions represent two more needle-moving opportunities for MPLX.

A great opportunity these days

MPLX has undergone a dramatic transformation over the past year to put it in a better position to grow. Because of that, the company appears poised to deliver a steady diet of distribution increases for the foreseeable future. That income growth should give it the fuel to outperform the market over the long term, which, when combined with its incredibly cheap valuation at the moment, is why I think it's the top dividend growth stock to buy in October.

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.