MPLX (MPLX +1.39%) currently pays a monster distribution to investors. The energy master limited partnership (MLP) yields 8.6%, which is significantly more than the S&P 500's 1.5% dividend yield.
What's becoming increasingly clear is that the company has the fuel to push its payout even higher in the future. That's evident from its first-quarter results and expansion outlook.
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The big-time payout is on an even firmer foundation
MPLX generated $1.21 billion of distributable cash flow in the first quarter. That's a 6.4% improvement from the year-ago period. It was also enough money to cover its high-yield dividend by a comfortable 1.65 times. That metric has improved from 1.56 in the year-ago period. Distribution coverage is 5.8% higher, even though the MLP has increased its distribution by 2.5% over the past year. A major factor in the improvement on a per-unit basis is its repurchase program, which has steadily reduced its outstanding units.
MPLX generated enough cash to fund its distribution and capital projects, with $92 million left over. That allowed it to repurchase 100 million units during the quarter. Meanwhile, its steadily rising earnings and fully funded capital allocation program have helped lower its leverage ratio from 3.9 to 3.7 over the past year. These improving financial metrics suggest the company's distribution is growing more sustainable by the quarter.
NYSE: MPLX
Key Data Points
More income growth upside
MPLX CEO Michael Hennigan commented on what he sees ahead for the company in the first-quarter earnings release. He stated: "We are advancing several organic growth projects focused on expansions and de-bottlenecking. These actions will continue to support the growth of MPLX, allowing our business to generate free cash flow and return capital to unitholders."
The energy company has two expansion projects nearing completion. It expects to finish the Tornado-2 natural gas processing plant in the Delaware Basin in the second half of the year. Meanwhile, the Smithburg de-ethanizer in the Marcellus shale should also come online in the back half of this year.
MPLX also continues to add crude oil gathering infrastructure in the Permian Basin and Bakken regions. In addition, it's expanding its crude and natural gas long-haul pipelines in those regions. The company and its partners recently reached a final investment decision to expand the Whistler Pipeline. The project will increase its natural gas capacity from 2 billion cubic feet per day (Bcf/d) to 2.5 Bcf/d, with a projected in-service date of September 2023.
As these projects come online, they'll provide the company with more cash that it can distribute to investors. That has certainly been the case in the past year. MPLX returned over $850 million to investors in the first quarter through a higher distribution and its unit repurchase program. Meanwhile, the MLP paid a special distribution of $0.575 per unit in the fourth quarter, bringing its total payment to $1.28 per unit. The company could use its growing future cash flows to continue increasing its base distribution while returning incremental cash via additional repurchases and special distributions.
An attractive option for income investors
MPLX continues to generate a growing stream of steady cash flow. That's giving it the funds to pay a higher distribution and invest in expanding its operations with room to spare. The MLP's high-yielding distribution should continue growing in the future, making it an attractive option for income-seeking investors.
