MPLX is looking to use is balance sheet strength to make acquisitions and drive growth.
The best ultra-yield midstream stocks just don't pay big distributions and have high dividend yields -- they also have predictable cash flows, solid balance sheets, and strong growth project pipelines that will help support higher payouts down the road.
Let's look at three top pipeline stocks that fit this bill.
Energy Transfer (NYSE: ET) is a great example of a midstream stock that has gotten its act together by strengthening its balance sheet and boosting its distribution coverage ratio. As a result, it is now pushing ahead with a plethora of new growth projects.
Its latest big project is the $5.3 billion Desert Southwest pipeline that will move 1.5 Bcf/d of natural gas from the Permian into Arizona and New Mexico. That comes on top of the multiphase Hugh Brinson Pipeline, which will serve demand from Texas power plants and data centers.
The master limited partnership (MLP) is also close to finally moving forward on its Lake Charles LNG project. It signed offtake contracts, brought in MidOcean Energy as a partner, and is talking with others about taking equity stakes. With liquified natural gas (LNG) exports expected to be one of the fastest-growing parts of the energy sector in the coming years, this adds another potential area of growth for the company.
Energy Transfer will spend $5 billion in growth capital expenditure (capex) this year, up from only $3 billion a year ago, and it has plenty of projects also set to come online in later years. It is targeting mid-teens returns on these investments, which should translate into years of strong cash flow and distribution growth.
The company has also done a great job of improving it balance sheet, with leverage now at the low end of its targeted range. It distribution coverage is also very robust, coming in at 1.7 times based on its distributable cash flow (operating cash flow minus maintenance capital expenditures) last quarter. Its payout has now been raised for 15 straight quarters, and management expects 3% to 5% annual increases going forward.
With 90% of 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) expected to come from fee-based contracts, Energy Transfer has a steady business with a clear growth runway.