Most high-yielding dividend stocks tend to be slower-growing companies. Because of that, the income stream makes up the bulk of the return you'll earn on the investment.
However, that's not always the case. MPLX (MPLX +0.82%) and Plains All American Pipeline (PAA 0.12%) pay fast-growing, high-yielding dividends. As a result, they could have the fuel to produce higher total returns in the coming years.
Faster growth from a similarly strong MLP
NYSE: MPLX
Key Data Points
MPLX currently pays a 7.1%-yielding cash distribution. That's several times higher than the S&P 500's 1.2% dividend yield. It's also higher than the yields of its more popular peers, Energy Transfer (ET +0.99%) and Enterprise Products Partners (EPD 0.24%). Its fellow master limited partnerships (MLPs) currently yield around 6.5%.
What's notable is that MPLX is growing its higher-yielding payout at a much faster rate. It increased its distribution by 12.5% last year, its third straight year of delivering double-digit distribution growth. For comparison, Energy Transfer and Enterprise Products Partners have been growing their payouts in the range of 3% to 5% each year.
MPLX backs its payout with a similarly strong financial profile. It covered its distribution with cash flow by a comfortable 1.5 times last year, a little lower than Enterprise at 1.7 and Energy Transfer at 1.9. Meanwhile, it ended the year with a 3.1 leverage ratio, well below the 4.0 range its stable cash flows could support. That's right in line with Enterprise Product's leverage ratio, which has the highest credit rating in the sector, and much lower than Energy Transfer's leverage level at the lower end of its 4.0-to-4.5 target range.
The MLP has similarly strong growth prospects. It recently added several new capital projects to its backlog, extending its growth outlook through the end of the decade. Given its conservative financial profile, it should have plenty of fuel to continue increasing its high-yielding distribution at a healthy rate.
A high-octane income growth rate
NASDAQ: PAA
Key Data Points
Plains All American Pipeline currently yields 7.7%. The oil pipeline MLP recently increased its payment by 20%, a $0.25-per-unit increase to $1.52 annually. That follows a 19% increase last year. It has grown its payout at a 21% compound annual rate since 2021.
To be fair, Plains All American Pipeline had cut its payout a few times in the past to retain additional cash for debt reduction and to invest in growth capital projects. With its balance sheet now in a much stronger position, it's been rebuilding its payout. Leverage will be at or below the low end of its 3.25-to-3.75 target range this year.
Plains All American Pipeline aims to grow its payment by at least $0.15 per unit each year until it reaches a 1.6 coverage level, about 10% annually from this year's level. With coverage of nearly 1.9 last year, it has plenty of room before it reaches that target level, especially given the continued growth in its cash flow.
The company is using its excess free cash flow and balance sheet flexibility to expand its pipeline system, repurchase equity, and maintain a strong financial position. It recently closed $670 million of bolt-on acquisitions and repurchased $330 million of its Series A Preferred Units. Those highly accretive transactions enabled it to deliver a much bigger dividend boost this year. Meanwhile, it has several organic expansion projects under way, with $400 million budgeted for this year, and sees a long runway of additional bolt-on acquisitions ahead.
Give your income a boost with these fast-growing MLPs
Having delivered robust dividend growth over the past few years, MPLX and Plains All American Pipeline have higher yields than some of their better-known peers despite having equally strong financial profiles. Meanwhile, they have plenty of fuel to continue growing their payouts at higher rates. They're great options for those seeking big-time income streams that should grow rapidly in the future, and for those who are comfortable investing in MLPs that send a Schedule K-1 Federal Tax Form each year.
