When it comes to investing, one size does not fit all. While growth stocks are all the rage, many investors are looking for stocks that can provide a steady stream of income through dividends. One of the best places to find high-yielding stocks with increasing distributions is in the midstream master limited partnership (MLP) space. These companies tend to act more like energy toll roads, and thus aren't as swayed by movements in energy prices.
Let's look at two high-yield MLPs to consider buying today.
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Energy Transfer
With a yield of 8.2%, Energy Transfer (ET 0.08%) is a high-yield stock with a solid growth outlook. Its current distribution is supported by a solid balance sheet and a high distribution coverage ratio, which was nearly 1.7x last quarter based on its distributable cash flow (operating cash flow minus maintenance capital expenditures). Meanwhile, around 90% of its business comes from fee-based operations, and it's said it has the largest percentage of take-or-pay contracts in its history, meaning it gets paid regardless of whether a customer uses its services or not. It expects to raise its distribution at a 3% to 5% yearly clip moving forward.
At the same time, the company is in growth mode, with plans for growth capex of between $5 billion to $5.5 billion in 2026. It's looking to achieve mid-teen returns on its projects, all of which are backed by long-term commitments. The company is well-positioned in the Permian Basin, which gives it access to some of the cheapest natural gas in the U.S.
NYSE: ET
Key Data Points
Two of its biggest projects are taking natural gas away from the Permian to markets with high demand. One pipeline will transport natural gas to the Arizona and New Mexico markets, while the other will head in the opposite direction and help support growing energy demand in Texas. The company also has projects working directly with artificial intelligence (AI) data center builders and operators to supply natural gas to them.
MPLX
Another great MLP with a high yield is MPLX (MPLX +0.41%). The stock carries an 8.3% yield, but what has been even more impressive is how quickly the company has been raising its distribution. For the second year in a row, it increased its payout by 12.5%, and it was the fourth year in a row that it raised it by more than 10%. Best of all, the company thinks it can continue to raise its distribution at a similar pace over the next couple of years.
The company operates in two segments: Natural gas and NGL (natural gas liquids) services, and crude oil and products logistics. Its crude operations are a very steady business supported by its parent, refinery Marathon Petroleum, while its natural gas and NGL business is its growth driver.
Meanwhile, MPLX has recently been working to upgrade its assets and improve its position in the Permian Basin. It acquired the remaining 55% interest it didn't own in the BANGL pipeline system, which transports NGLs from the Permian Basin to fractionation markets along the Gulf Coast, and it bought a sour gas treatment business in the Delaware Basin (which is part of the Permian) for $2.4 billion. It also divested some legacy assets in the Rockies for proceeds of $1 million.
NYSE: MPLX
Key Data Points
The company is also progressing with a number of organic growth projects. This includes expanding the BANGL pipeline and its Titan treating complex, as well as adding more fractionators along the Gulf Coast and participating in joint venture projects.
MPLX is in good financial shape, with low leverage of just 3.7x at the end of the third quarter. Its distribution is also well covered, with a coverage ratio of 1.3x last quarter.
