3 High-Yield Master Limited Partnerships With Sustainable Payouts

Master limited partnerships, otherwise known as MLPs, are appealing to income investors. MLPs widely offer high distribution yields above 5%. A select few MLPs even have yields above 10%.

Of course, investors should always do their due diligence to make sure the underlying distribution is secure. Many high-yield stocks have a tendency to cut or suspend their payouts, particularly during recessions.

As a result, investors should seek a balance between yield and safety when it comes to dividend investments. The following three master limited partnerships have high yields but also should be able to maintain their distributions if a recession occurs.

Enterprise Products Partners LP (EPD)

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Enterprise Products Partners (NYSE:EPD) is a midstream oil and gas storage and transportation company. Enterprise Products has a tremendous asset base, consisting of nearly 50,000 miles of natural gas, natural gas liquids, crude oil and refined products pipelines. It also has storage capacity of more than 250 million barrels.

First-quarter revenue amounted to $12.44 billion, a decrease of 4.3% compared to the previous year. However, distributable cash flow increased 5.5%, reaching $1.9 billion in the first quarter of 2023. Adjusted free cash flow (FCF) for the 12 months ending March 31 was $5.9 billion. The partnership distributed 75% of adjusted FCF to its common unitholders during the same period.

Enterprise has positive growth potential moving forward, thanks to new projects and exports. It has several billion dollars’ worth of major capital projects currently under construction. For the full year 2023, the company anticipates organic growth capital investments to range between $2.4 billion and $2.8 billion. Exports are also a key growth catalyst. Demand for liquefied petroleum gas and liquefied natural gas, or LPG and LNG, respectively, is growing at a high rate across the world, particularly in Asia.

In terms of safety, Enterprise Products Partners is one of the strongest midstream MLPs. It has credit ratings of BBB+ from Standard & Poor’s and Baa1 from Moody’s. It also has a distribution coverage ratio of nearly 2x, leaving room for distribution increases and unit repurchases. Enterprise Products’ high-quality assets generate strong cash flow, even in recessions. As a result, Enterprise Products has been able to raise its distribution to unitholders for 25 years in a row. EPD currently yields 7.5%.


Percentage symbols on wooden cubes stacked in a triangle. The top cube is red. high-yield dividend stocks

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MPLX (NYSE:MPLX) is another midstream MLP that operates in two segments. Its first segment is Logistics and Storage, which relates to crude oil and refined petroleum products. The second segment is Gathering and Processing, which stores and transports natural gas and natural gas liquids (NGLs).

MPLX has generated steady financial results in 2023. In early May, MPLX reported financial results for the first quarter of fiscal 2023. Adjusted EBITDA and distributable cash flow (DCF) per share grew 9% and 6%, respectively, over the prior year’s quarter. That was primarily thanks to a 6% increase in liquid volumes and increased tariff rates. MPLX maintained a healthy consolidated debt to adjusted EBITDA ratio of 3.5x and a solid distribution coverage ratio of 1.6x.

Pipelines tend to have 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.

MPLX’s industry generally holds competitive advantages as a result of the toll-booth model of pipelines. While growth potential may be limited, the need for the company’s infrastructure is certainly present. With MPLX in particular we are encouraged by the company self-funding on the equity side and getting rid of the Incentive Distribution Rights.

The company has had strong distribution metrics in recent years. In the last five years, MPLX has had distribution coverage ratios of 1.36x, 1.51x, 1.46x, 1.64x and 1.6x. Meanwhile, the company’s total debt to adjusted EBITDA has been 3.9x, 4.1x, 3.9x, 3.7x and 3.5x during the same time period. Generally, MLPs are targeting a ratio under 5x.

Overall, the distribution payout of MPLX appears to be secure. MPLX currently yields 8.9%.

Brookfield Infrastructure Partners (BIP)

Brookfield Infrastructure logo on a phone screen in front of a blurred computer screen. BIPC stock.

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Brookfield Infrastructure Partners LP (NYSE:BIP) is one of the largest global owners and operators of infrastructure networks, which includes operations in sectors such as energy, water, freight, passengers and data. Brookfield Infrastructure Partners is one of multiple publicly traded listed companies under Brookfield Corporation (NYSE:BN).

BIP reported positive Q1 2023 results on May 3. Helped by relatively high inflation, strong volumes across its transport networks, and the commissioning of about $1 billion in new capital projects over the last 12 months, organic growth for the quarter was robust at 9%. BIP also deployed $2.4 billion of capital in new acquisitions over the past year. Consequently, for the quarter, its funds from operations (FFO) increased 12% to $554 million. On a per-unit basis, its FFO climbed 12.5% to 72 cents. FFO growth was driven by the utilities and data segments, which saw growth of 25% and 21%, respectively. The transport operations saw FFO growth of 4%, while the midstream segment’s FFO rose 1%.

Brookfield has a solid operating history in the past decade. From 2013-2022, the company grew FFO per share and dividends per share by 8%, on a split-adjusted basis. BIP has a strong track record of selling mature assets and redeploying capital for attractive long-term returns.

Brookfield’s future growth will be driven by a major acquisition. In April, along with its institutional partners, BIP announced to acquire Triton, the world’s largest owner and lessor of intermodal shipping containers and a critical provider of global transport logistics infrastructure. The company was valued at an enterprise value of about $13.3 billion. Separately, its infrastructure portfolio also expects to experience strong organic growth of 6-9% per year.

Stable FFO and a sustainable payout ratio leads to a secure dividend. BIP has strong liquidity of $2.4 billion at the corporate level. Additionally, BIP maintains a solid credit rating of BBB+.

The company defines the payout ratio as distributions paid (inclusive of GP incentive and preferred unit distributions) divided by FFO, which was 68% in 2022, within management’s FFO payout ratio target of 60% to 70%. FFO remains stable even through recessions because of the essential services provided by its diversified infrastructure portfolio. BIP units currently yield 4.3%.

On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

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