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This 15%-Yielding Oil Stock Has No Plans to Cut Its Dividend

By Matthew DiLallo - May 5, 2020 at 2:44PM

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MPLX is generating plenty of cash to maintain its high-yielding payout while executing its expansion plan.

Units of MPLX (MPLX -2.29%) have been under tremendous pressure this year due to the collapse of oil prices. The main weight has been investor concerns about the master limited partnership's (MLP) ability to maintain its big-time payout. 

But the energy company put some of those fears to rest by reporting solid first-quarter results. It also reaffirmed its support for the dividend (which yields more than 15% following this year's nearly 30% slide in its market value) even as it maintains its strategic expansion plan.

A look at MPLX's first-quarter results


Q1 2020

Q1 2019

YOY Change (Decline)

Adjusted EBITDA

$1.294 billion

$1.263 billion


Distributable cash flow (DCF)

$1.078 billion

$1.021 billion


DCF per unit




Distribution coverage ratio

1.44 times

1.89 times


Debt-to-EBITDA ratio

4.1 times

3.9 times


Data source: MPLX. 

As that table shows, earnings and cash flow both improved on an overall basis during the quarter. But cash flow per unit did decline, largely because of the impact of the company's merger with Andeavor Logistics. Fueling the growth was the company's logistics and storage business:  

MPLX's earnings by segment in the first quarter of 2020 and 2019.

Data source: MPLX. Chart by the author.

Earnings from logistics and storage rose by about 5%. Fueling that increase was higher pipeline volumes and the growth of its marine business. Total pipeline volumes rose 2% to 5.1 million barrels per day, which more than offset an 8% decline in volumes at its terminals.

The gathering and processing segment saw its earnings decline by 3% year over year. While processed and fractionated volumes rose 3% and 8% respectively, gathered volumes decreased by 3%, primarily due to lower gas prices in the Marcellus and Utica region.

Oil refinery at twilight with oil storage tanks in front.

Image source: Getty Images.

What's ahead for MPLX

The challenges in the energy market have MPLX taking some steps to further insulate its business from the turbulence. It's reducing its growth spending plan by another $600 million to around $900 million. One of the casualties is its proposed BANGL project, which it no longer plans to pursue. Instead, it will work with some of its peers to optimize existing pipeline capacity. MPLX is also deferring the associated NGL fractionation capacity and export facility. 

Meanwhile, the company plans to reduce its maintenance spending by around $100 million, leaving it at $150 million, and cut operating expenses by $200 million. These spending reductions will help offset some of the lost income from lower commodity prices as well as reduce its borrowing, to ease concerns about its balance sheet.

One thing MPLX isn't changing is its strategy to create integrated crude oil and natural gas logistics systems to move those commodities from the Permian Basin to the Gulf Coast. Thus, it plans to continue investing in the Wink-to-Webster oil pipeline as well as the Whistler gas pipeline. It's also expanding the Mt. Airy Terminal to increase its storage and export capacity. Those nearly fully contracted projects are all on track to come on line next year.

MPLX also has no plans to cut its distribution. By significantly reducing spending, the company can fund its current payout as well as the bulk of its capital investment plan with cash flow, which should keep leverage in check. Meanwhile, with its integrated logistics systems still on track to start up next year, it anticipates that cash flow will grow. In its estimation, MPLX will be able to fund its payout as well as all growth spending with room to spare in 2021. That free cash flow will give it the flexibility to pay down debt or repurchase some of its beaten-down units.

Increasing confidence in the long-term sustainability of its big-time payout

The market might have some concerns about MPLX's ability to maintain its distribution during this downturn while continuing to pursue its expansion strategy. But the company believes it has made enough adjustments to its spending plan so that it can afford both without putting any additional pressure on its balance sheet. Because of that, those expansions will provide a big boost to cash flow next year, which should further stabilize the payout.

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