These MLPs can enable you to generate lots of passive income.
The dividend yield on the S&P 500 is currently around 1.2%, which is near its all-time low. As a result, it’s getting harder to find stocks with attractive dividend yields.
However, there are some enticing income opportunities if you know where to look. For example, several master limited partnerships (MLPs) offer much more enticing yields these days, including Energy Transfer (ET +0.91%), Enterprise Products Partners (EPD 0.25%), and MPLX (MPLX +0.60%). As a result, they can turn a $2,000 investment into a lucrative passive income stream:
|
Dividend Stock |
Investment |
Current Yield |
Annual Dividend Income |
|---|---|---|---|
|
Energy Transfer |
$666.67 |
8.1% |
$53.93 |
|
Enterprise Products Partners |
$666.67 |
6.8% |
$45.07 |
|
MPLX |
$666.67 |
7.8% |
$52.07 |
|
Total |
$2,000.00 |
7.6% |
$151.07 |
Data source: Google Finance and the author’s calculations.
Here’s why they’re such smart options for income-seeking investors right now.
Image source: Getty Images.
Energy Transfer
Energy Transfer is one of the largest energy midstream companies in the country. Its pipelines, processing plants, and export terminals generate stable cash flow backed primarily by fee-based structures (90% of its earnings). The MLP has produced nearly $6.2 billion in cash through the first nine months of the year, conservatively covering the $3.4 billion it has distributed to investors. That has allowed it to retain lots of money to fund new investments.
The midstream giant also has a strong balance sheet. Its leverage ratio is currently in the lower half of its 4.0-4.5 times target range. These conservative metrics have Energy Transfer in the strongest financial position in its history.
Today’s Change
(0.91%) $0.15
Current Price
$16.56
Key Data Points
Market Cap
$57B
Day’s Range
$16.37 – $16.65
52wk Range
$14.60 – $21.45
Volume
13M
Avg Vol
14M
Gross Margin
12.85%
Dividend Yield
7.94%
The company is using its financial flexibility to invest heavily in expanding its operations. It plans to spend $4.6 billion on growth capital projects this year and another $5 billion in 2026. It currently has projects lined up to come online through 2029. These projects help support its view that it can grow its already high-yielding payout by 3% to 5% per year.
Enterprise Products Partners
Enterprise Products Partners is in an even stronger financial position than Energy Transfer. The MLP’s A-/A3 bond rating is the highest in the energy midstream sector. Enterprise Products Partners has a low 3.3 times leverage ratio and produces enough stable cash flow to cover its high-yielding distribution by a comfy 1.5 times.
Enterprise Products Partners
Today’s Change
(-0.25%) $-0.08
Current Price
$32.13
Key Data Points
Market Cap
$70B
Day’s Range
$31.98 – $32.33
52wk Range
$27.77 – $34.53
Volume
2.8M
Avg Vol
4M
Gross Margin
12.74%
Dividend Yield
6.72%
The MLP has been using its financial flexibility to support a multi-year growth capital deployment phase, which is coming to an end. The company is placing $6 billion of expansion projects into commercial service during the second half of this year. They’ll contribute meaningful incremental cash flow next year. Meanwhile, its capital spending is on track to decline from $4.5 billion this year to between $2.2 billion and $2.5 billion in 2026. As a result, it should produce substantially more free cash flow in the coming year.
That will give Enterprise Products Partners more money to return to investors. The MLP has increased its distribution payment for 27 straight years, a streak that will undoubtedly continue. Additionally, the company boosted its buyback authorization from $2 billion to $5 billion.
MPLX
MPLX also backs its high-yielding payout with rock-solid financial metrics. The MLP produces stable cash flow and has a conservative 1.3 times coverage ratio. Meanwhile, its leverage ratio was 3.7 times at the end of the third quarter, comfortably below the 4.0 times range that its stable cash flows can support.
Today’s Change
(0.60%) $0.33
Current Price
$54.85
Key Data Points
Market Cap
$56B
Day’s Range
$54.14 – $54.85
52wk Range
$44.60 – $56.26
Volume
1.1M
Avg Vol
1.6M
Gross Margin
44.67%
Dividend Yield
7.19%
The MLP has made several acquisitions this year, including paying $2.4 billion for Northwind Midstream. Meanwhile, it has approved a long list of new growth capital projects. It now has projects underway that should enter commercial service through 2029.
Those projects will give MPLX the fuel to continue increasing its high-yielding distribution. It recently raised its payout by another 12.5%, its second straight year of hiking it by that rate.
High-octane income streams
These MLPs produce lots of stable cash flow, giving them the funds to pay lucrative distributions while investing in growing their operations. Their big-time income streams also come with some tax advantages, as MLPs send investors a Schedule K-1 Federal Tax Form each year. This combination makes them some of the smartest high-yield dividend stocks to buy right now.