3 High-Quality Ultra-High-Yield Dividend Stocks Passive Income Investors Won't Want to Miss

A high dividend yield is often a warning sign. It can signify that the payout is at a higher risk of a reduction.

However, that's not always the case. Many pipeline companies offer investors high-yielding payouts that are on very firm foundations. That makes them great options for those seeking to generate passive income. Three high-yielding pipeline stocks that income-focused investors won't want to miss are Crestwood Equity Partners (CEQP), Hess Midstream (HESM -0.09%), and MPLX (MPLX 0.17%).

Already on solid ground but getting stronger

Crestwood Equity Partners currently offers investors a monster 11.5% yield. The master limited partnership (MLP) generates plenty of steady recurring cash flow backed by long-term, fixed-rate contracts to cover that payout.

During the first quarter, Crestwood produced $103.6 million of distributable cash flow, enough to cover its payout by a comfy 1.5 times. The company expects to produce enough cash this year to cover its distribution by 1.6 to 1.8 times.

That will enable the MLP to retain all the cash it needs to fund its expansion capital program of $135 million to $155 million with room to spare. Crestwood expects to produce between $10 million and $90 million of excess free cash flow in 2023, which it will use to reduce debt. 

The MLP already has a solid leverage ratio of 4x, following the recent sale of its natural gas storage joint venture. However, it's targeting to get leverage below 3.5x over the longer term.

The company has a line of sight on achieving that goal as its earnings grow and it uses excess cash to reduce debt. Once the goal is achieved, Crestwood can allocate excess cash toward increasing its distribution and repurchasing its common and preferred equity.

Rock solid and steadily rising

Hess Midstream generates lots of very stable cash flow backed by long-term contracts to provide midstream services to oil producer Hess and other customers. Those agreements should grow the company's volumes at a 10% annualized rate through 2025. That gives Hess Midstream lots of visibility. 

The company expects to use that stable and growing cash flow to pay and increase its dividend, which currently yields 8.2%. Hess aims to grow that payout by 5% per year through 2025. 

Hess Midstream estimates that it will generate more than $1 billion of financial flexibility through 2025, even after paying its sizable and growing distribution. The company could use that money for incremental shareholder returns, such as repurchasing its common units. Meanwhile, it will maintain a strong balance sheet, with leverage expected to remain at or below its long-term target of 3x.

The steady growth continues

MPLX currently offers a 9.2%-yielding cash distribution. It supports that big-time payout with rock-solid financials.

The MLP generates plenty of stable recurring cash flow to cover its distribution. It had a comfy 1.6 times coverage ratio during the first quarter. That enabled it to retain cash to fund expansion projects and maintain a strong balance sheet. The company ended the period with a 3.5x leverage ratio, well below its 4x target.

MPLX uses its retained cash and balance-sheet flexibility to invest in high-return expansion projects. Those expansions will supply it with more cash flow, which it can reinvest in the business and return incremental money to investors via a growing distribution and opportunistic unit repurchases. The MLP increased its already sizable distribution by 10% late last year, continuing the steady upward trend in the payout since MPLX's formation in 2012.

Big-time passive-income streams

Crestwood Equity Partners, Hess Midstream, and MPLX all offer a high-yielding payout backed by stable cash flow and strong financial profiles. They generate more cash than they need to cover their payouts, enabling them to retain some money to invest in growing their energy midstream operations.

That should increase their cash flow, allowing each to increase their already sizable payouts in the future. Because of that, these energy midstream companies are excellent options for investors seeking to generate passive income.