MPLX (MPLX -1.24%) offers investors the best of both worlds. The master limited partnership (MLP) pays a high-yielding dividend (over 7%) and has a healthy growth profile. The company's growth drivers have helped fuel a steady rise in its distribution.
The MLP has added a lot more fuel to its growth engine this year. The latest addition is its nearly $2.4 billion acquisition of Northwind Midstream. It further enhances the company's ability to increase its high-yielding payout, making the MLP an even more attractive option for those seeking passive income.
Image source: Getty Images.
Drilling down into the deal
MPLX has agreed to acquire Northwind Midstream for about $2.4 billion in cash. The deal will immediately boost its cash flow, while also providing the MLP with embedded growth potential from in-process expansions and future opportunities.
The company is funding the deal with its strong balance sheet. MPLX ended the first quarter with $2.5 billion in cash on its balance sheet and a low leverage ratio of 3.3 times. That's well below the 4 times range its stable cash flows can support.
Northwind provides sour gas gathering, treating, and processing services in New Mexico. It currently has more than 200 miles of gathering pipelines, two acid gas injection (AGI) wells with 20 million cubic feet per day (MMcf/d) of capacity, and 150 MMcf/d of sour gas treating capacity. Additionally, the company has a permit for a third AGI well, which could increase its total capacity to 37 MMcf/d.
In-process expansions will boost its sour gas treating capacity to 440 MMcf/d by the second half of next year. Northwind's assets produce stable, growing cash flow supported by minimum volume commitments with leading regional oil and gas producers.
The acquisition expands MPLX's services into southeast New Mexico. It also enhances the company's access to natural gas and natural gas liquids (NGLs), supporting its downstream operations. The transaction strengthens the company's operations, positioning it to accelerate its growth opportunities in the Permian Basin.
A strong year for sourcing new growth
The Northwind acquisition adds another incremental growth driver for MPLX this year. The MLP had previously secured more than $1 billion of bolt-on acquisitions. It acquired the remaining 55% interest in the BANGL Pipeline for $715 million, purchased a crude oil gathering system for $237 million, and acquired an additional 5% interest in the Matterhorn Express Pipeline for $151 million. These acquisitions will provide the MLP with immediate incremental sources of cash flow and some future growth potential.
Additionally, MPLX and its joint venture partners recently approved the Traverse Pipeline. They expect to finish the gas pipeline in 2027. This joint venture is also building the Blackcomb and Rio Bravo Pipelines, which have in-service dates in the second half of next year. This trio of major pipelines will ship more gas from the Permian Basin to the Gulf Coast region.
The midstream company has several other expansion projects currently under construction, including:
- BANGL Pipeline: Expanding the capacity from 250,000 barrels per day to 300,000 barrels per day (second half of 2026 in-service date).
- Secretariat and Harmon Creek III: The MLP is building two more gas processing plants (completions expected in the fourth quarter of 2025 and the second half of next year).
- Gulf Coast Fractionators: MPLX is building two NGL fractionation facilities for its parent company (Marathon Petroleum) with in-service dates of 2028 and 2029.
- LPG Export Terminal: The company has a joint venture with ONEOK to build a new LPG export terminal (2028 in-service date).
These growth investments will generate significant incremental cash flow for the MLP over the next several years. They'll give the company ample fuel to continue increasing its distribution.
MPLP has raised its payment every year since its formation in 2012. It has grown the distribution at a rate of more than 10% annually since 2021. With a comfortable 1.5 times coverage ratio at the end of the first quarter, MPLX has ample room to continue increasing its payout.
A high-quality, high-yielding investment
MPLX continues to utilize its strong financial profile to secure additional growth investments. That should give the MLP more fuel to increase its distribution. These features make it an excellent option for those seeking a lucrative and steadily rising income stream (and are comfortable receiving the Schedule K-1 federal tax form the MLP sends investors each year).
