Enterprise Products Partners(NYSE: EPD) is one of the more popular energy stocks. A big driver of its popularity is its big-time payout. The master limited partnership (MLP) currently offers a 7.2%-yielding distribution. Further, the company has increased its payment for 25 straight years.
Investors who like Enterprise Products Partners (and understand the tax complexities of owning an MLP) should check out fellow MLP MPLX(NYSE: MPLX). The company offers a higher 8.3% yield and has grown its distribution faster in recent years. Here's a closer look at how MPLX stacks up against Enterprise Products Partners.
A dual-focused MLP
MPLX is a diversified, large-scale MLP formed by refining giant Marathon Petroleum. It has two business segments:
- Logistics & Storage: The company transports, distributes, stores, and markets crude oil, refined products, and other hydrocarbons. It operates pipelines, storage assets, a marine business, and export terminals.
- Gathering & Processing (G&P): MPLX operates several natural gas gathering systems that transport it to processing complexes, which remove natural gas liquids (NGLs) from the stream. The dry gas moves through the pipeline system while the NGLs head to fractionation complexes for further processing.
Enterprise Products Partners has a similar business. It also operates crude oil and refined products logistics and storage assets, as well as natural gas G&P operations. In addition, the company has a large petrochemicals business, which provides additional diversification.
Those diversified midstream operations supply both MLPs with stable earnings and cash flow. Last year, MPLX produced $6.3 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and $5.3 billion of distributable cash flow (DCF). While that's less than Enterprise produced last year -- its adjusted EBITDA was $9.3 billion while DCF was $7.5 billion -- MPLX grew faster. Its adjusted EBITDA was up nearly 9% in 2023, while DCF rose more than 7%, driven by organic expansion projects across its business segments. Meanwhile, Enterprise Products Partners' adjusted EBITDA was roughly flat, while DCF declined by about $100 million because of lower commodity prices and gas processing margins.
Nearly as good as its rival in many key metrics
While Enterprise Products Partners is bigger and more diversified than MPLX, they have similarly strong financial metrics. For example, Enterprise Products Partners produced enough DCF to cover its high-yielding distribution by a comfy 1.7 times last year. MPLX was right in that same ballpark at 1.6. That strong coverage ratio enables both MLPs to retain significant excess cash to fund expansion projects and maintain strong balance sheets.
Speaking of which, Enterprise Products Partners has one of the strongest balance sheets in the midstream sector. It has the highest credit rating in the midstream space (A-/A3), backed by its low 3.0 leverage ratio, which falls in the middle of its 2.75-3.25 target range. While MPLX doesn't have quite as high a credit rating, at BBB, its leverage ratio is only slightly higher at 3.3, which is well below the 4.0 its stable business could support.
Solid growers
Enterprise Products Partners and MPLX also have solid growth track records. MPLX has grown its adjusted EBITDA at a 5.3% compound annual rate since 2019 while delivering 7% compound annual DCF growth. That's given the MLP the fuel to increase its base distribution rate at a 4.8% compound yearly rate, including boosting its payout by 10% in each of the last two years.
While Enterprise Products' growth rate flattened out last year, the MLP has grown its adjusted EBITDA at an 8.8% compound annual rate since 2017. However, it hasn't grown its distribution quite as fast as MPLX in recent years, only giving investors a 5.1% raise over the past 12 months.
They both should have plenty of fuel to continue growing their adjusted EBITDA, DCF, and distributions in the future. Enterprise Products Partners has $6.8 billion of major growth projects under construction that should enter service through 2026. Meanwhile, MPLX expects to invest $950 million across several growth projects this year, which should come online through the second half of 2025.
In addition, they both have the financial flexibility to continue making acquisitions. Last December, MPLX spent $270 million to buy the remaining 40% interest in a gathering and processing joint venture. Meanwhile, Enterprise recently spent $400 million to buy out Western Midstream's interest in three joint ventures.
Another enticing income option
MPLX rivals Enterprise Products Partners in many ways. However, a key difference is that it offers a higher-yielding distribution that has grown faster in recent years, making it an even more enticing option for income-seeking investors. So, if you're thinking about investing in Enterprise, you might also want to consider MPLX.
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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
