This Monster 8.4%-Yielding Dividend Has Plenty of Fuel to Continue Growing

MPLX (NYSE: MPLX) recently hiked its quarterly distribution by a hefty 12.5%. That boosted its yield to an impressive 8.4%, putting it even further ahead of the S&P 500's paltry 1.1% yield. It continued the master limited partnership's (MLP) unbroken streak of distribution growth since its IPO in 2012.

That's the midstream giant's second conecutive 12.5% annual increase, "reflecting conviction in our growth outlook," stated CEO Maryann Mannen in the third-quarter earnings press release. With a burgeoning backlog of expansion projects underway and a fortress financial profile, the MLP has ample fuel to continue increasing its monster payout in the future.

Another solid quarter

MPLX generated nearly $1.7 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during the third quarter. That's up 3% from last year. It brought the company's year-to-date total to $5.2 billion, a 4.2% year-over-year increase. The company has benefited from higher volumes and rates on its legacy assets, as well as contributions from some recent acquisitions.

The MLP produced nearly $1.5 billion of distributable cash flow during the quarter -- a measure of cash available to pay dividends to investors -- enough to cover its recently raised payment level by a comfortable 1.3 times. Meanwhile, MPLX ended the quarter with a 3.7 times leverage ratio. This is below the 4.0 times range that its steady cash flows can support. That number should further improve in the fourth quarter when the company completes the $1 billion sale of its non-core Rockies gathering and processing assets. Those healthy financial metrics put its high-yielding payout on a very firm foundation.

Adding lots of fuel to continue growing

MPLX has been actively securing new growth drivers this year. The MLP entered the year with two natural gas processing plants under construction (with in-service dates of the fourth quarter of 2025 for Secretariate and the second half of 2026 for Harmon Creek III). Additionally, one of its joint ventures (JV) was building two new natural gas pipelines (Blackcomb and Rio Bravo, with expected in-service dates in the second half of 2026).

The MLP has significantly enhanced and extended its growth profile since that time. It has closed several acquisitions this year, including buying Northwind Midstream for $2.4 billion and acquiring the remaining 55% interest in the BANGL pipeline from its JV partners for $715 million. These deals will supply it with incremental income in the coming quarters and visible growth drivers. MPLX is in the process of expanding BANGL's capacity by 50,000 barrels per day (second half of 2026 expected in-service date) and Northwind's Titan complex (a second sour gas treating plant should come online in the second half of next year).

Additionally, the company has secured several more expansion projects. The most recent one is the Eiger Express Pipeline. MPLX and its JV partners expect to complete this new gas pipeline by mid-2024. The company also recently signed a letter of intent to supply gas to planned integrated power generation facilities and state-of-the-art data center campuses in West Texas. MPLX will receive some of the power produced at these facilities to support its operations.

MPLX now has a long list of expansion projects underway, including several gas pipelines, two new natural gas liquids fractionators, and a new LPG export terminal. It has projects scheduled to enter commercial service every year through the end of the decade. They strengthen the company's view that it can deliver mid-single-digit annual adjusted EBITDA growth in the coming years. Meanwhile, its strong financial profile provides ample financial flexibility to continue approving new expansion projects and completing additional accretive acquisitions as opportunities arise to further strengthen its long-term growth profile.

A high-quality, high-yielding income producer

MPLX is an income-producing machine. The MLP's energy midstream assets generate stable and steadily rising earnings, providing it with the financial flexibility to pay a high-yielding distribution and continue investing in its growth. With lots of growth coming down the pipeline, the MLP should have plenty of fuel to continue increasing its big-time payout. That makes it an excellent option for investors seeking passive income and who are comfortable receiving the Schedule K-1 Federal Tax Form the MLP sends each year.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.