While it takes money to make money, some investments enable you to supercharge your returns. One of those is MPLX (MPLX 0.70%). The midstream master limited partnership (MLP) currently offers a 9.5% distribution yield. That's several times above the S&P 500's 1.7% dividend yield.
Put another way, a $1,000 investment in MPLX would produce roughly $95 of passive income in 2023. For comparison, putting that same amount in an S&P 500 index fund would only yield about $17 of dividend income next year.
Even better, MPLX's massive payout will likely continue rising in 2023. That makes it a great way to energize your passive income in the new year.
Drilling down into MPLX's delightful distribution
MPLX is a diversified midstream company. It operates pipelines, processing plants, storage facilities, and marine terminals. These assets generate steady cash flow backed by government-regulated rate structures and long-term contracts with various customers, including its parent company, refining giant Marathon Petroleum.
The MLP generated more than $3.7 billion of distributable cash flow through the first nine months of this year. That was enough money to cover its hefty distribution by a comfortable 1.64 times. The company used the cash it retained to fund expansion projects. It also repurchased $315 million worth of its dirt-cheap common units.
Meanwhile, the company ended the period with a strong balance sheet. Leverage was 3.5 times debt-to-adjusted EBITDA. That was down from 3.7 times in the same period of 2021 and below its 4.0 target. Because of that, MPLX has a lot of financial flexibility.
These financial metrics suggest MLPX's big-time distribution is on a rock-solid foundation. They gave the MLP the confidence to recently increase its payout by another 10%. That continued its steady growth over the years:
MPLX dividend; data by YCharts. (MPLX paid a special distribution in 2021.)
The fuel to continue pumping more cash into investors' pockets
MPLX should be able to continue growing its attractive distribution in the future. The company is investing to expand its logistics and storage (L&S) assets and the gathering and processing (G&P) business.
Its L&S segment is investing in expanding its long-haul natural gas pipelines and crude oil gathering systems in the Permian Basin and Bakken regions.
One substantial investment is the Whistler Pipeline, which it owns with several other partners. They're expanding that pipeline to increase its natural gas transportation capacity to 2.5 billion cubic feet per day (Bcf/d), up from 2 million Bcf/d. The partners expect the expansion to be in service by next September.
Meanwhile, the G&P segment is expanding its capacity to meet producer demand. In the Permian Basin, MPLX expected to bring the Tornado ll processing plant on line by year-end. It also expects to complete the Preakness II plant by the first half of 2024. In the Marcellus, MPLX brought the Smithburg de-ethanizer on line last quarter and expects to complete the Harmon II processing plant by the first half of 2024.
These expansion projects should help grow the company's cash flow over the next few years. That visible growth should enable MPLX to continue increasing its distribution. The company also has ample financial flexibility for additional organic expansion projects as commercial opportunities materialize. It can also make opportunistic acquisitions to expand its L&S or G&P operations.
A giant passive income producer
MPLX offers a gargantuan distribution that's on an extremely firm foundation. Even better, the company's big-time payout will likely continue rising in the coming years. Because of that, investing in MPLX is a great way to supercharge your passive income in the upcoming year.
