Enterprise Products Partners(NYSE: EPD) and MPLX (NYSE: MPLX) offer investors the best of both worlds. The master limited partnerships (MLPs) pay monster distributions (both currently yield more than 7%). They've also been able to grow their earnings and payouts at healthy rates for years.
The MLPs currently have enough commercially secured organic expansion projects under construction to grow their cash flow through at least 2026. That should supply them with ample fuel to continue increasing their high-yielding payouts.
$6.7 billion of fuel to continue growing
Enterprise Products Partners has been a distribution growth machine. The MLP has increased its payment for 26 consecutive years, every year since it came public. It has grown its payout at a 7% compound annual rate by investing in expanding its portfolio of stable midstream assets with acquisitions and organic expansions.
The company currently has $6.7 billion of major capital projects under construction. They include additional natural gas processing capacity, pipeline expansions, and more export capacity projects. Its current slate of projects should come online through the end of 2026. That provides the MLP with lots of visibility into its ability to grow its cash flow and distribution over the next few years.
Enterprise Products Partners can easily fund that growth. It has a low distribution payout ratio, consisting of 55% of its adjusted cash flow from operations and a low leverage ratio of 3.0. That gives it lots of flexibility to fund its current slate of capital projects and make new investments as opportunities arise.
The MLP is working to enhance its growth outlook. It recently agreed to buy Pinon Midstream in a highly accretive deal for $950 million. That acquisition will boost its cash flow per share next year, with further upside from commercial synergies and future expansion potential. It's also pursuing several additional growth opportunities, including new gathering pipelines, more export capacity, and other expansion projects. Securing these projects and making additional accretive acquisitions could extend its growth outlook even further into the future.
Its partnerships are paying dividends
MPLX has increased its distribution every year since it came public more than a decade ago. It has grown its payout at a 7.3% compound annual rate since 2020, including by 10% in each of the last two years. Fueling that growth has been a combination of organic expansion projects and acquisitions, which have helped drive a 7.7% compound annual growth rate in its distributable cash flow over the last several years.
The MLP should continue growing at a healthy rate over the next few years. It's part of a joint venture (JV) that recently agreed to build the Blackcomb Pipeline, which should enter service in the second half of 2026. That same JV formed to help fund the construction of the Rio Bravo Pipeline Project, which should also enter service in 2026. MPLX has several other expansion projects on track to enter service over the next couple of years.
Those projects provide it with lots of visibility into its ability to grow its free cash flow. Meanwhile, it has plenty of financial flexibility to fund its current slate of projects and new investment opportunities, including accretive acquisitions. It ended the second quarter with $2.5 billion of cash and a low 3.4x leverage ratio. That's after making a couple of acquisitions this year, including buying an additional 20% interest in the BANGL pipeline, which it's currently expanding, and spending $625 million to buy out existing joint ventures and a dry gas gathering system. Future accretive acquisitions and high-return expansions could further enhance and extend its ability to increase its distribution.
Ample fuel to continue growing their high-yielding distributions
Enterprise Products Partners and MPLX have grown their distributions every year since they came public. Those trends seem likely to continue through at least 2026, given the expansion projects they have coming down the pipeline. They're great options for those seeking a lucrative and steadily rising passive income stream and are comfortable with receiving a Schedule K-1 Federal Tax Form each year.
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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.
