One of the reasons I love high-yielding stocks is that dividends (or distributions in the case of MLPs) offer investors immense flexibility when it comes to building long-term wealth. For example, a younger investor can take the income and reinvest it into more shares/units and compound the returns. In a financial pinch, the income stream can be tapped to help pay bills, rather than the investor being forced to sell shares/units. Upon reaching retirement that same income stream can be used to pay bills and, if the investment is chosen correctly, prevent inflation from decreasing purchasing power over time.

All of these benefits are magnified when a company pays a monthly dividend or distribution, and this article highlights two undervalued oil producers with not only safe and sustainable double-digit yields, but with strong growth prospects that promise steady distribution growth going forward. 

Breitburn Energy Partners (BBEPQ) is one of my favorite oil-producing MLPs. In my last article about the company, I explained the reason why the distribution coverage ratio temporarily dipped to 0.93 and predicted that the company's latest acquisition would cause distributable cash flow, which pays the distribution to soar. Well, management didn't disappoint and reported a record, blowout quarter. 

  • Adjusted EBITDA up 84%
  • DCF up 88%
  • Distribution coverage ratio 1.0
The fact that the quarter saw some of the most severe weather in years, making well maintenance and drilling difficult, only makes the latest results more impressive. The strong results were due to the partnership's $860 million acquisition of Whiting Petroleum's Postle Field, which is located in the Oklahoma Panhandle. This field contains 98% oil, a total of 35 million barrels of reserves, with production of 7,400 barrels/day -- this translates to an estimated reserve life of 13 years. 
 
Through smart investment, Breitburn was able to increase production by 4% in just one quarter and through aggressive hedging, lock in high, predictable cash flows that will both secure the current distribution and continue the partnership's historic 3%-4% CAGR distribution growth.
 
The kind of success Breitburn is having with its latest acquisition bodes well for the future, as management is reiterating guidance of 2014 accretive acquisitions of $600 million. 
With current liquidity of $573 million, Breitburn is well positioned to achieve this goal and achieve management's guidance of 2014 distribution coverage ratio of 1.1. 
 
QRE Energy (NYSE: QRE) is a small, up-and-comer exploration and production MLP that poses a special opportunity for long-term investors through the buyout of its general partner. The most recent earnings call indicated a major shakeup at the partnership that slightly alters my previous analysis and is something that should be considered by potential investors. 
 
Management reported a 2% production increase over last quarter -- which would have been 5.7% accounting for severe weather -- and a distribution coverage ratio of 1, down from 1.2 last quarter. The decline in the coverage ratio, as well as the unit price's recent 9% price collapse, was due to it announcing a major strategy shift away from major accretive acquisitions in favor of organic growth via a large-scale investment program.
 
Specifically, management is planning on increasing capital expenses by 82% in an effort to target existing assets in what it believes to be low-risk opportunities to increase production. Combined with aggressive hedging, management believes this to be the best way to increase DCF/unit and the distribution. 
 
The recent acquisition of its general partner was 7% accretive to DCF/unit, which I believe to be a catalyst for a distribution increase this year. The new investment program (scheduled to kick into full gear in the second half of 2014 with full benefits coming in 2015) will likely postpone that increase until next year, but allow for larger and more sustained increases going forward.
 
With sufficient liquidity to complete its new investment program, as well as continue bolt-on acquisitions, and with the current 11.4% yield safely covered, I feel that QRE's special opportunity has evolved, but remains promising. Wall Street's disappointment in the company's new, longer-term investment strategy has created a strong buying opportunity that is likely to make patient income investors a lot of money -- both in terms of income and capital gains. 

Foolish takeaway
Upstream MLPs are one of the best ways for income investors to earn strong, safe monthly income. Breitburn Energy and QRE Energy are two of the best choices in the sector and currently trade for deep discounts to the value of their oil reserves (called the standardized measure). Both partnerships possess strong growth catalysts that promise consistent distribution growth in the future, which will likely lead to long-term market-beating total returns.