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We believe that investors searching for income consider owning Master Limited Partnerships, or MLPs. These stocks typically provide very high yields, often in the high single- to low double-digit range.Of course, high yields often come with high risk, so investors need to identify high-quality MLPs that are likely to continue to at least maintain, if not raise, their distribution.Three of our top high yield MLPs that we believe will continue to pay high yields to shareholders include Sunoco LP (SUN), MPLX LP (MPLX), and Cheniere Energy Partners LP (CQP).
Sunoco LP (SUN)
Sunoco LP distributes a range of fuel products through its wholesale and retail business units. The wholesale unit purchases fuel products from refiners and sells those products to both its own and independently owned dealers.Sunoco reported its first quarter earnings results on May 15. The company reported that its revenues totaled $5.5 billion during the quarter, which was 3% more than the 2023 first quarter. Adjusted EBITDA rose 10% year over year, improving to $242 million during the quarter. Distributable cash flow totaled $176 million during the quarter, 10% higher year-over-year. For 2024, Sunoco is forecasting EBITDA of $1.46 billion to $1.52 billion to account for the acquisition of NuStar Energy.In Sunoco’s industry, the company profits from significant scale and revenue consistency. In Texas, Sunoco is one of the largest independent fuel distributors, and Sunoco is also among the top distributors of Chevron, Exxon, and Valero branded motor fuel in the rest of the United States. In the fuel wholesale industry, scale is important, as increased scale allows for higher margins and a better negotiating position with suppliers.Sunoco is one of the largest fuel wholesalers in Texas, which provides competitive advantages in terms of size and scale. It is also a key distributor for Exxon and Chevron branded fuels, and the company has good relationships with these energy giants. Via tuck-in acquisitions, Sunoco could increase its scale advantage further over the coming years.Sunoco’s dividend payout ratio has moved in a wide range throughout its existence, as its cash flow has seen steep ups and downs. The company has never cut its dividend, but dividend increases have been difficult to come by. The current yield of around 6% provides more than ample income. Sunoco has covered its dividend payout by a factor of 1.9 via distributable cash flows during the last 4 quarters, thus the dividend looks sustainable.SUN currently yields 6.1%.
MPLX LP (MPLX)
MPLX, LP is a master limited partnership that was formed by Marathon Petroleum (MPC) in 2012. The business operates in two segments: Logistics and Storage – which relates to crude oil and refined petroleum products – and Gathering and Processing – which relates to natural gas and natural gas liquids (NGLs). On July 30th, 2019, MPLX acquired Andeavor Logistics LP. The company generated $5.3 billion in distributable cash flow in 2023.In late April, MPLX reported (4/30/24) financial results for the first quarter of fiscal 2024. Adjusted EBITDA and distributable cash flow (DCF) per share both grew 8% over the prior year’s quarter, primarily thanks to higher tariff rates, but also thanks to increased gas volumes. MPLX maintained a healthy consolidated debt to adjusted EBITDA ratio of 3.2x and a solid distribution coverage ratio of 1.6. We expect the positive business momentum to remain in place this year and thus we expect record DCF per share of about $5.40 this year.On October 31st, 2023, MPLX announced a quarterly distribution of $0.85 per unit, which marked a 10% raise. MPLX has increased its distribution for 11 consecutive years.MPLX has a stronghold in terms of extracting economic rents. Building pipelines requires years of approvals and ongoing regulation. As such, the incumbent positions enjoy “toll-booth” type business models, with a good portion of their revenue fixed via fee-based and “take or pay” agreements. MPLX in particular has a strong position in the Marcellus / Utica region, with long-term contracts from Marathon.In the last five years, MPLX has had an average distribution coverage ratio above 1.5x. Meanwhile, the company’s total debt to adjusted EBITDA has been declining. In addition, the revenues of MPLX are reliable thanks to the long-term contracts with parent company Marathon. Overall, the distribution yield of MPLX is safe in the absence of a prolonged recession.MPLX currently yields 7.9%.
Cheniere Energy Partners LP (CQP)
Cheniere Energy Partners (CQP) is a Master Limited Partnership formed by Cheniere Energy. CQP owns and operates regasification facilities at the Sabine Pass liquefied natural gas (LNG) terminal, which is in Cameron Parish, Louisiana, providing LNG to energy companies and utilities around the world. We expect LNG to continue to replace coal and thus play a major role in the transition to a cleaner energy landscape.In early May, CQP reported (5/3/24) results for the first quarter of fiscal 2024. Its number of LNG cargos rose 2% over the prior year’s quarter but the company incurred material losses in its commodity derivatives. As a result, its earnings plunged 65%, from $1.935 billion to $682 million. Due to the sanctions of western countries on Russia, European gas prices have remained above average. The demand for LNG cargos remains strong but it has somewhat moderated. As a result, CQP reiterated its guidance for an annual distribution of $3.15-$3.35 in 2024.CQP has remarkably improved its performance in recent years. It has built 6 liquefaction trains in its Sabine Pass terminal since 2016. Thanks to improvements in its operations, its current production capacity is 12% higher than the initial nominal capacity. Moreover, CQP completed its sixth train in 2022 and plans to add up to 3 more trains in the upcoming years. Thanks to the strong demand for LNG cargos, which has resulted from the elevated European gas prices, CQP is likely to post above-average earnings this year.CQP currently yields 6.1%.More By This Author:High Dividend 50: Philip Morris International Inc.
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