Higher-yielding stocks tend to grow slower. That's usually because they don't retain as much cash to fuel their growth.
However, that's not always the case.ConocoPhillips (NYSE: COP) and MPLX(NYSE: MPLX) provide investors with the best of both worlds. They pay high-yielding dividends thatthey'regrowing rapidly, meaning these energy stocks should have the fuel to produce high-octane total returns in the future.
Acquisition-fueled dividend growth
ConocoPhillips recently increased its dividend by a whopping 34%. The oil giant now yields nearly 3%. That's more than double the S&P 500's dividend yield of less than 1.5%. The recent raise continued its stretch of high-octane dividend increases, with a 14% pay bump in 2023 and an 11% boost in 2022.
The oil company expects to continue growing its dividend briskly in the coming years. It's aiming to be in the top 25% of dividend growers in the S&P 500.
One factor fueling its high-octane dividend growth is its needle-moving acquisition of Marathon Oil (NYSE: MRO). ConocoPhillips is paying $22.5 billion to acquire the rival oil company. The deal will be immediately accretive to its earnings, cash flows, and return of capital per share. The acquisition will further deepen its portfolio, adding significant high-quality, low costof supply inventory. That helps drive its view that it can capture more than $500 million in cost synergies after closing the deal.
ConocoPhillips also expects to continue buying back its shares hand over fist. It has retired 14% of its outstanding shares since closing its acquisition of Concho Resources in 2021. The company plans to buy back $20 billion of its stock over the next few years, which should be enough to retire all the stock it will issue to buy Marathon. With its cash flow rising and outstanding shares falling, ConocoPhillips should be able to continue increasing its dividend briskly.
A high-octane, high-yielding payout
MPLX currently offers a monster yield. The master limited partnership's (MLP) distribution yields nearly 9%.
Companies with yields that high typically don't grow that fast. However, MPLX recently boosted its payout by an impressive 12.5%. That follows 10% increases in each of the prior two years.
A couple of factors have helped fuel its robust growth rate. First, MPLX is growing at a solid clip. It has grown its distributable cash flow at a 7.7% compound annual rate since 2020, fueled by expansion projects and accretive acquisitions. For example, it bought additional ownership interests in existing joint ventures and a dry gas gathering system for $625 million in the first quarter. Meanwhile, it placed the Harmon Creek II processing plant into operation in that same period. The MLP also formed a joint venture to combine the Whistler Pipeline with the Rio Bravo Pipeline project in the second quarter.
MPLX also has a very conservative financial profile. It ended the second quarter with a very comfortable distribution coverage ratio of 1.6 and a low leverage level of 3.4, which is below its 4.0 target.
The MLP should be able to continue increasing its distribution at a healthy pace. In addition to maintaining a strong financial foundation, MPLX has plenty of growth coming down the pipeline. It recently acquired another 20% interest in the BANGL natural gas liquids pipeline, which it's currently expanding. The first of quarter 2025 is the expected in-service date. In addition, the company and its partners in the Whistler Pipeline joint venture approved the construction of the Blackcomb Pipeline. These and other projects should grow its cash flows in the future, giving it more fuel to increase its distribution.
High-octane income stocks
ConocoPhillips and MPLX have grown their dividends briskly in recent years. That's impressive, considering their higher yields. With more growth likely, they're attractive options for those seeking high-octane total returns.
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Matt DiLallo has positions in ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
