Energy midstream companies have fallen out of favor with investors over the years. Many investors are concerned that demand for fossil fuels will go extinct as the world transitions to cleaner alternatives. That would dry up the cash flows midstream companies produce.

However, most industry forecasters expect oil and gas to continue playing a vital role in fueling the economy for decades, with demand expected to keep rising in the coming years. That should supply pipeline companies with stable and growing earnings while giving them time to transition their businesses. In the meantime, investors can collect big-time passive income streams from the space. Three of the most severely underrated midstream companies are Energy Transfer (ET 0.44%), MPLX (MPLX 0.26%), and Delek Logistics Partners (DKL -0.33%).

This big-time payout is heading higher

Energy Transfer doesn't get anywhere near the credit it deserves. The leading master limited partnership (MLP) generates copious cash flows. The company produced over $2 billion in distributable cash flow in the first quarter. It distributed about half that money to investors via a payout yielding an eye-popping 9.7%. It retained the other half to fund expansion projects and continue shoring up its much-improved balance sheet.

The MLP expects to invest about $2 billion in expansion projects this year, which will help grow its cash flow in the coming years. It also acquired Lotus Midstream in a $1.45 billion cash-and-equity deal. That transaction will increase its cash flow without impacting its leverage metrics. With its business producing more cash than it needs to fund the distribution and growth projects, Energy Transfer expects its leverage ratio to be at the lower end of its 4.0 to 4.5 target ratio.

Energy Transfer's growing cash flow and strengthening balance sheet drive its plan to increase its already massive distribution. The MLP intends to grow the payout by 3% to 5% annually by giving investors modest quarterly rate increases. That makes it an extremely attractive option for income-seeking investors. 

A massive and rapidly rising payout

MPLX currently yields 9.1%. That monster payout is also on a very firm foundation. The company produced about $1.3 billion of distributable cash flow during the first quarter. That was enough money to cover its big-time payout by a super comfy 1.6 times. Meanwhile, the MLP ended the period with leverage at 3.5, below its 4.0 target. 

Those factors give the company the financial flexibility to invest in expansion projects and opportunistically repurchase its dirt cheap units. The MLP is currently expanding its natural gas long-haul and crude oil gathering pipelines in the Permian and Bakken basins. It's also building several new natural gas processing plants in the Permian and Marcellus basins. These expansions will grow its cash flow as they come online over the next couple of years. 

MPLX's growing cash flows will enable the MLP to continue increasing its distribution. The pipeline company gave its investors a 10% pay bump last fall, continuing its steady distribution growth. 

A model of consistency

Delek Logistics Partners' distribution currently yields around 9%. The MLP has an exceptional track record of increasing its payout. It has given investors a raise for more than 40 straight quarters. The company grew its distribution by 5% last year. 

Delek generated enough cash to cash to cover its distribution by 1.4 times in the first quarter. Meanwhile, it had a reasonable leverage ratio of 4.8. Those factors put its payout on a solid foundation while giving it the financial flexibility to invest in high-return expansion projects. It's connecting many new wells to its gathering systems in the Permian Basin, which will drive volume and cash flow growth. It also has the flexibility to pursue acquisitions as opportunities arise. 

The pipeline company's solid financial position and growing cash flows drive its plan to raise its payout by another 5% in 2023. 

Vastly underrated income stocks

The market isn't paying much attention to midstream MLPs. That's obvious, given the 9% yields currently offered by Energy Transfer, MPLX, and Delek Logistics Partners. Investors are severely underestimating their ability to maintain and grow their big-time distributions. They represent great opportunities for those seeking big-time and steadily rising passive income streams.