Big, fat dividend yields are wonderful, but yield can't be looked at in isolation. Which is why midstream companies like Enbridge (ENB 0.75%), Enterprise Products Partners (EPD +0.81%), Magellan Midstream Partners (MMP +0.00%), MPLX LP (MPLX 0.40%), and Delek Logistics Partners (DKL 1.72%) are all worth examining today. Not only do they each possess impressive disbursement track records, but they also are all trading in the sub-$100 space.
1. The Canadian giant
Enbridge, with a massive $80 billion market cap, hails from Canada but spans all of North America. It owns oil pipelines -- accounting for 58% of earnings before interest, taxes, depreciation, and amortization (EBITDA) -- natural gas pipelines (26%), a natural gas utility operation (12%), and renewable power assets (4%).
The company's yield is a generous 6.2%, and the dividend has been increased annually for an impressive 27 years and counting. The payout, meanwhile, only eats up 65% of distributable cash flow, with the company noting that it generates 2 billion Canadian dollars ($1.48 billion) in cash flow above its business and dividend needs, providing ample downside protection for dividend investors worried about the safety of the payment.
NYSE: ENB
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2. The U.S. giant
With a market cap of $54 billion, Enterprise Products Partners is another of the largest players in the North American pipeline space. The company owns a broad collection of pipelines, storage, transportation, and processing assets that would be virtually impossible to replace or re-create.
The distribution yield of the master limited partnership (MLP) is a hefty 7.6% The distribution has been increased annually for 24 consecutive years and was covered by distributable cash flow 1.8 times over in the third quarter. Enterprise also has an investment-grade balance sheet. Given the distribution coverage here, it seems far more likely that the MLP increases its distribution than cuts it.
NYSE: EPD
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3. A little more risk
Magellan Midstream Partners has a market cap of just $10 billion or so, making it materially smaller than either of the above pipeline names. It's also heavily focused on oil, with a portfolio that basically contains just oil and refined pipeline and storage assets. It's a contrarian bet that oil will remain an important part of the global energy space for years to come.
And while it has an investment-grade balance sheet, its distributable cash flows only covered its distribution by around 1.2 times. But for more-aggressive types, the 8.2% yield could be enough to justify the risks, noting that the distribution has been increased annually since the MLP's initial public offering in 2001.
4. A strong parent
MPLX LP, with a $34 billion market cap, has a sizable business that largely supports the energy business of parent Marathon Petroleum. The yield here is a huge 9%, despite the fact that the MLP managed to cover its distribution by a generous 1.6 times in the third quarter. MPLX has increased its distribution annually for roughly a decade.
That said, Marathon Petroleum owns around two-thirds of the MLP's units and is the general partner, so it basically has complete control of MPLX LP. That might upset more-conservative investors, since decisions could be made that benefit Marathon over unitholders.
NYSE: MPLX
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5. The little guy
At a roughly $2 billion or so market cap, Delek Logistics Partners is the smallest name on this list. Its business is fairly diversified, with pipelines, logistics, retail, asphalt, and renewable assets in the mix. Its distribution coverage was roughly 1.6 times in the third quarter, and the distribution has been increased annually for a decade. The yield is around 7.2%.
This relatively modest-size pipeline stock will likely require a bit more work to monitor than the larger names here, given its size and broad range of investments. So it's likely only appropriate for more-active types.
Modest entry points
There are two things that connect all five of these midstream players: long histories of disbursement increases and stock/unit prices that are well below $100. In other words, they are accessible and reliable. They all also happen to offer very generous dividend yields. Conservative investors are likely better off with names like Enbridge and Enterprise, but more-intrepid types shouldn't bypass the smaller names.
