Growing your passive income is a great goal to set for the new year. One way to achieve that objective is to invest in stocks that offer an attractive and growing dividend. That combination can enable you to produce more income from your investment in the coming years.
Energy-focused master limited partnerships (MLPs) can help you supercharge your passive income production. They offer big-time yielding payouts that can steadily grow over time. Three exceptional MLPs to consider are Enterprise Products Partners (EPD -0.41%), Magellan Midstream Partners (MMP), and MPLX (MPLX 0.26%).
A large and steadily growing payout
Enterprise Products Partners operates a large-scale and diversified energy midstream business. Its integrated platform of pipelines, processing plants, storage complexes, petrochemical facilities, and export docks generates significant and steady cash flow backed by long-term contracts and government-regulated rate structures.
That gives it the money to pay a hefty cash distribution to investors that currently yields 7.6%, several times higher than the S&P 500's 1.7% dividend yield. To put that into a different perspective, $1,000 invested into Enterprise Products Partners would produce $76 of annual passive income while only generating $17 in an S&P 500 index fund.
The midstream MLP generated enough cash to cover that big-time payout by a comfy 1.8 times during the third quarter. That enabled it to retain cash to fund expansion and maintain a top-tier balance sheet. Last year, the company invested $1.6 billion on organic expansions and spent $3.25 billion to buy Navitas Midstream Partners. It ended the period with a strong balance sheet. It had one of the highest credit ratings in the midstream sector and a leverage ratio of 3.1 times, which was below its 3.25-3.5 times target range.
Enterprise recently increased its distribution to investors and has grown its payout by 5.4% over the past year. It has given investors a raise for 24 straight years. Enterprise has plenty of fuel to continue growing its payout, given the $5.5 billion of organic expansion projects it currently has under construction.
A well-oiled income-producing machine
Magellan Midstream Partners has a large midstream business focused on transporting, storing, and distributing refined petroleum products. It also has a crude oil segment that transports and stores oil. These assets generate very predictable cash flow, as more than 85% comes from fee-based contracts.
That gives it stable cash flow to support a healthy distribution that currently yields 7.9%. It covered that payout by a solid 1.27 times last year, exceeding its long-term target of at least 1.2 times coverage. Magellan further supports that payout with a strong balance sheet. Like Enterprise, it's one of the highest-rated midstream companies, which it backs with a 3.7 times leverage ratio (below its 4.0 times target).
The MLP also has a long history of increasing its payout. It has delivered more than 20 years of uninterrupted annual distribution growth. Magellan Midstream expects to continue growing its payout in the future, supported by high-return expansion projects and a falling unit count as it completes repurchases. It has repurchased $1.18 billion of its units since 2020, reducing the total by 12%.
A big-time payout
MPLX is a large, diversified MLP with operations centered around logistics, storage, gathering, and processing. Its business generates steady cash flow backed by long-term contracts and government-regulated rate structures. That gives it the funds to support a distribution yielding slightly more than 9%.
The MLP produces enough cash to cover that big-time payout by a comfortable 1.6 times. That allows it to retain money to fund expansion projects and repurchase its units. Meanwhile, it has a strong balance sheet, backed by a 3.5 times leverage ratio, which is below its 4.0 times target.
MPLX recently gave its investors a sizable 10% raise. That continued the steady growth in the company's payout since its formation in 2012. MPLX should be able to keep giving its investors raises in the future. It has several expansion projects under construction that should help grow its cash flow over the next few years.
Multiple ways to supercharge your income in 2023
Energy MLPs pay big-time distributions that they back with cash-flowing infrastructure assets. That makes them ideal for producing passive income. Enterprise, Magellan, and MPLX stand out as some of the top options because they offer high-yielding payouts that they've steadily increased over the years. With more income growth ahead, they're exceptional options to buy for 2023 and beyond.
