2 High-Yield MLPs to Add to Your Watchlist
Master limited partnerships (MLPs) are recognized for their unique tax structure, which exempts them from paying corporate taxes. So, given analysts' expectations for the Treasury yield curve over the coming...
Master limited partnerships (MLPs) are recognized for their unique tax structure, which exempts them from paying corporate taxes. So, given analysts' expectations for the Treasury yield curve over the coming months, we believe high-yield MLP stocks Enterprise Products (EPD) and MPLX LP (MPLX) could be great additions to one's watchlist. Read on to learn more.
A master limited partnership (MLP) is a for-profit organization that operates as a publicly traded limited partnership. Simply put, MLPs provide tax advantages similar to limited partnerships and provide liquidity similar to publicly listed securities. In addition, MLPs distribute most of their income among their partners.
Although most MLPs have moderate growth rates due to their capital-intensive operations, they often deliver consistent returns on investment. Furthermore, because analysts expect the Treasury yield curve to be flat by mid-year, MLPs could be an ideal choice for fixed-income investors due to their strong earnings yields.
Therefore, we think Enterprise Products Partners L.P. (EPD) and MPLX LP (MPLX) could be great additions to one's watchlist, given their higher than industry dividend yields. In addition, they are also rated "Buy' in our proprietary POWR Ratings system.
Enterprise Products Partners L.P. (EPD)
EPD in Houston, Tex., provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals, and refined products. NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services; and Petrochemical & Refined Products Services are the company's four operational segments. EPD also manages refined product pipelines and terminals, as well as ethylene export terminals, and offers refined product marketing and sea transportation services.
This month, EPD's affiliate agreed to acquire Navitas Midstream Partners, LLC in a debt-free transaction from an affiliate of Warburg Pincus LLC for $3.25 billion in cash. The acquisition gives EPD's natural gas processing and NGL company a foothold in the Midland Basin, one of the most economically and commercially viable crude oil basins in the United States.
Last month, EPD began commercial operation on its new Gillis Lateral pipeline and the accompanying extension of its existing Acadian Haynesville Extension system to supply the burgeoning Gulf Coast liquefied natural gas market.
EPD's revenue increased 61.4% year-over-year to $11.37 billion in the fourth quarter, ended Dec. 31, 2021. Its operating income grew 98.2% from its year-ago value to $1.40 billion. The company's net income surged 204.9% from the prior-year quarter to $1.02 billion, while its EPS increased 213.3% year-over-year to $0.47. In addition, its 7.6% dividend yield is 93.7% higher than the 3.9% industry average.
The company's EPS is expected to grow 28.1% year-over-year to $2.19 in fiscal 2021. Analysts expect EPD's revenue to increase 46.1% year-over-year to $39.73 billion in fiscal 2021. The stock has gained 14.4% in price over the past year and 8.4% over the past month.
EPD's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
EPD is also rated an A for Momentum and a B for Value and Stability. Within the A-rated MLPs – Oil & Gas industry, it is ranked #10 of 35 stocks. To see additional POWR Ratings for Growth, Quality, and Sentiment for EPD, click here.
MPLX LP (MPLX)
MPLX in Findlay, Ohio, is involved primarily in the ownership and operation of midstream energy infrastructure and logistics assets in the United States. The company operates in two segments: logistics, storage, and gathering; and processing. It gathers, processes, and transports natural gas, natural gas liquid, crude oil, refined petroleum products, and other hydrocarbon-based products and sells residual gas and condensate.
Last November, MPLX's subsidiary, Tesoro High Plains Pipeline Company LLC, launched a binding open season to assess shipper interest in obtaining service on new expansion capacity for the Connolly Gathering System portion of THPP's pipeline system, which is in Dunn County, North Dakota. The projected expansion capacity would provide comparable gathering services from additional origin sites.
During the third quarter, ended Sept. 30, 2021, MPLX's total revenue and other income increased 13.9% year-over-year to $2.56 billion. Its operating income grew 14.7% from its year-ago value to $1.03 billion, while its net income surged 20.6% year-over-year to $802 million over this period. The company's EPS increased 21.3% from its year-ago value to $0.74. In addition, its 8.2% trailing-12-months dividend yield is 107.6% higher than the 3.9% industry average.
The $2.82 consensus EPS estimate for fiscal 2021 represents a 452.5% improvement year-over-year. Analysts expect MPLX's revenue to increase 29.2% year-over-year to $9.78 billion in fiscal 2021. The stock has gained 48% in price over the past year and 14.4% over the past month.
MPLX's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum and a B for Stability and Quality. In the MLPs – Oil & Gas industry, it is ranked #8.
In total, we rate MPLX on eight distinct levels. Beyond what we have stated above, we have also given MPLX grades for Growth, Value, and Sentiment. Get all the MPLX ratings here.
EPD shares rose $0.11 (+0.46%) in premarket trading Wednesday. Year-to-date, EPD has gained 10.49%, versus a -3.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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