9.1%-Yield MPLX Stock Closing in on Record-High Price
January 25, 2024
Why Shares of MPLX LP Are Compelling
If you like the idea of investing in energy stocks but don’t want to constantly pay attention to oil and natural gas prices or where we are in the economic cycle, you might want to consider a midstream energy stock like MPLX LP (NYSE:MPLX).
We like midstream energy stocks here at Income Investors. Energy pipelines are the toll bridges of the oil patch, moving oil and gas from wellheads to refineries. Midstream energy businesses transport the natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products that make our modern world run.
The case for investing in midstream oil and gas stocks like MPLX stock is pretty straightforward.
With companies like MPLX LP, it doesn’t matter where oil and gas prices are or where they’re going. What does matter is that, due to their contracts, midstream energy businesses get paid whether oil and gas drillers make money or not. Pipeline profits aren’t hit by asset bubbles or stock market crashes.
Best of all, companies like MPLX LP have little competition. No other method of transportation can move crude energy from point A to point B more cheaply than pipelines.
Historically, that has made midstream energy stocks like MPLX stock great long-term plays for income and growth.
MPLX LP is a midstream energy partnership formed by oil and gas behemoth Marathon Petroleum Corp (NYSE:MPC). The Findlay, Ohio-based MPLX owns and operates midstream energy infrastructure and logistics assets, as well as providing fuel distribution services. (Source: “Fact Sheet,” MPLX LP, last accessed January 18, 2024.)
Volatile energy prices have almost no impact on the company’s earnings because it earns a fee for each barrel shipped. Therefore, its cash flow is steady.
MPLX LP’s assets, which are in key U.S. supply basins, include:
- Crude oil and natural gas gathering systems
- Crude oil, natural gas, and refined product pipelines
- Storage caverns
- Refinery tanks, docks, loading racks, and associated piping
- Natural gas and NGL processing and fractionation facilities
- An inland marine business
- Crude oil and light-product marine terminals
During the third quarter of 2023, MPLX reported net income of $918.0 million, compared to $1.4 billion in the third quarter of 2022. The third-quarter 2022 net income included a $509.0-million non-cash gain. (Source: “MPLX Reports Third-Quarter 2023 Financial Results,” MPLX LP, October 31, 2023.)
The partnership’s adjusted earnings were $1.59 billion in the third quarter of 2023, up from $1.47 billion in the same prior-year period.
Also during the third quarter of 2023, the company’s net cash from operating activities grew to $1.24 billion, while its distributable cash flow increased to $1.37 billion, or $0.850 per unit.
MPLX Stock’s Quarterly Distribution Hiked by 10%
Thanks to its high distributable cash flow, MPLX LP has been able to return significant amounts of capital to its unitholders.
The partnership has raised MPLX stock’s distribution every year since it went public in 2013. That means, even during the worst economic crisis in 100 years (the COVID-19 pandemic), MPLX was able to increase its dividends. Better still, in November 2021, it also paid special dividends. (Source: “Distribution,” MPLX LP, last accessed January 18.)
Moreover, before the pandemic, MPLX had raised its dividends for 28 consecutive quarters. The only thing that got in the way of that record was the pandemic. Management held MPLX stock’s payout at $0.6875 in 2020 and the first half of 2021. The partnership has been raising its dividend regularly since then.
In the third quarter of 2023, the company returned $799.0 million to its unitholders.
In October 2023, management declared a quarterly cash distribution of $0.85 per unit, for a yield of 9.1% (as of this writing). This represented a 10% increase over the $0.775 per unit that MPLX stock paid out in the third quarter of 2022. (Source: “MLX LP Increases Quarterly Distribution,” MPLX LP, October 24, 2023.)
Commenting on the company’s dividend and financial results, Michael J. Hennigan, MPLX’s chairman, president, and CEO, said, “We announced a 10% increase to our distribution, and through the first nine months of the year we have grown distributable cash flow over 6% compared to the same period in 2022.” (Source: MPLX LP, October 31, 2023, op. cit.)
There’s every reason to believe that MPLX will continue raising its dividends; its distribution coverage ratio is 1.6x and its payout ratio is 89.08%.
In addition to being an ideal stock for dividend hogs, MPLX stock has been outperforming the broader market in terms of share price. The stock went up by 36.7% in 2023 and, as of this writing, it’s up by:
- 19.8% year-over-year
- 126% since the start of 2020
- 720% since bottoming in March 2020
Those big gains are certainly worth celebrating, and the outlook for MPLX stock is impressive. Wall Street analysts have provided a 12-month share-price target in the range of $41.00 to $44.00. This points to potential gains in the range of 8.25% to 17.8%.
Even if shares of MPLX LP hit the lower target of $41.00, that would put them ahead of their January 2015 record high of $40.26.
Chart courtesy of StockCharts.com
The Lowdown on MPLX LP
Energy stocks have been some of the biggest winners since 2021, and MPLX stock has been one of the brightest stars. It has posted triple-digit share-price gains, and its quarterly dividends have increased many times.
MPLX LP has a large and growing midstream energy infrastructure and has been reporting wonderful financial results.
Thanks to its strong business performance and lower capital spending, the company has been able to generate exceptionally high cash flow, allowing MPLX stock to pay reliable, growing, high-yield dividends.
