3 Top-Performing Energy MLPs Deliver Price Gains, High Yield

Key Points

• Pipeline operators Enterprise Product Partners, Energy Transfer, and MPLX are among master limited partnerships outperforming the broader market while also throwing off high dividend yields. 
• Because of their business structure, MLPs don't pay corporate income taxes, and are able to pay investors higher-than-average dividends.
• Because they operate under a fee-for-service model, energy MLPs aren't as sensitive to underlying commodity prices as other oil-and-gas industries.

Pipeline operators Enterprise Product Partners L.P. NYSE: EPD, Energy Transfer L.P. NYSE: ET and MPLX L.P. NYSE: MPLX are among energy-industry master limited partnerships outperforming the broader market while also throwing off high dividend yields. 

That makes some of these companies worthy of adding to a watch list, even as analysts see the broader energy sector’s earnings decreasing this year, according to researcher FactSet. 

These MLPs, as a group, are outpacing other energy sub-industries, such as explorers and producers. Why is this group showing such strength right now? 

These pipeline operators, also dubbed midstream MLPs, typically perform well during bouts of high inflation. Rather than having their revenue pegged to commodity prices, such as explorers and producers, these energy infrastructure companies offer fees for their services. Oilfield services companies, such as Schlumberger Ltd. NYSE: SLB and Halliburton Co. NYSE: HAL use a similar product-and-service model not linked to oil-and-gas prices. Oilfield services stocks are also outperforming.  

Midstream MLPs generally operate under long-term contracts, which include adjustments for inflation. That explains the revenue growth most of those companies enjoyed in 2021 and 2022. 

The dividend yield is also a big attraction of MLPs. They typically pay high yields to investors because they do not pay corporate income taxes, due to their business structure. 

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For a glimpse at broad industry performance, check the chart of the Global X MLP ETF (NYSEARCA: MLPA), which tracks the Solactive MLP Infrastructure Index. That index is composed of midstream MLPs engaged in the transportation, storage, and processing of energy resources.

Enterprise Product Partners, Energy Transfer, and  MPLX are the index’s three largest components, coming in at 12.62%, 12.38%, and 10.87% of index weighting, respectively. 

That ETF is up 6.57% so far this year, versus the 1.15% return of the broad energy sector, represented by the Energy Sector Select SPDR Fund NYSEARCA: XLE. The S&P 500 energy sector includes stocks from various sub-industries within the broad sector, most of which are underperforming MLPs. 

Enterprise Product Partners

With a market cap of $58.26 billion, Enterprise is the largest MLP. Its size and asset base give it the ability to grow through various market cycles, and into various industry segments. It has the scope and scale to gather hydrocarbons from a number of sources, then sell them to its customers in the refining, exporting, and petrochemical verticals. It also has pricing power. 

Revenue grew at double-digit rates in the past eight quarters. The current dividend yield is 7.3%. Enterprise has increased its dividend for the past 26 years, MarketBeat data show.

Shares are up 4.61% in February, following the company’s fourth-quarter report. 

Energy Transfer 

Energy Transfer clocks in with a market cap of $40.30 billion. It’s grown revenue at triple- and double-digit rates in each of the past eight quarters. Its primary focus is natural gas and propane pipeline transport. 

MarketBeat data show a “buy” rating on the stock, with a price target of $16, representing a 22.61% upside. The company reported fourth-quarter results on February 15, with earnings rising by 17% and revenue up by 10%. Shares ended the session 0.68% lower. 

Energy Transfer’s dividend yield is 9.35%. The dividend has increased in each of the past two years. 

MPLX

MPLX went public in 2012, after being formed by Marathon Petroleum Corporation NYSE: MPC. It owns and operates midstream energy infrastructure and logistics systems, including a network of pipelines for crude and refined oil, terminals, storage facilities, refinery tanks, and other assets.

Although revenue decreased by 3% in the fourth quarter, it still topped analysts’ estimates, as MarketBeat earnings data show. 

Shares are trading within pennies of their close on January 31, when the company reported. It’s repeatedly hit resistance between $35 and $36. Watch for the stock to rally above a potential buy point above $35.49, reached in April 2022. 

MPLX’s dividend yield is 8.83%. The dividend increased for nine years in a row.