3 Pipeline Stocks With Sky-High Yields to Buy Now and Never Sell
Key Points
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Enterprise Products Partners has increased its high-yielding distribution for 27 straight years.
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Energy Transfer aims to grow its payout by 3% to 5% each year.
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MPLX has been growing its high-yielding payout at a high-octane rate in recent years.
Most dividend stocks have rock-bottom yields these days. The S&P 500 is around 1.1%, which is near its record low. That’s leaving income-focused investors with fewer appealing options.
However, they aren’t without any enticing options. The pipeline sector stands out for its abundance of high-yielding dividend stocks. Here are three top pipeline stocks to buy and hold for a lifetime of dividend income.
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Pipelines with the bright sun in the background.
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Enterprise Products Partners
Enterprise Products Partners (NYSE: EPD) currently offers a 6% distribution yield. The master limited partnership (MLP) — an entity that sends a Schedule K-1 Federal tax form each year — has increased its cash distribution for 27 consecutive years, including by 3.6% last year.
The MLP’s energy midstream operations generate stable cash flow backed by fee-based contracts and government-regulated rate structures. Last year, it generated $7.9 billion of operational distributable cash flow, enough to cover its high-yielding payout by a comfortable 1.7 times, enabling it to retain $3.2 billion to reinvest in the partnership. It invested $4.4 billion into growth capital projects and spent another $632 million on acquisitions.
Enterprise Products Partners currently has $4.8 billion in major growth capital projects under construction, which it expects will enter commercial service through 2027. It has ample financial capacity to fund its growth, including having the strongest balance sheet in the energy midstream sector. The MLP should have plenty of fuel to continue increasing its high-yielding payout going forward.
Energy Transfer
Energy Transfer (NYSE: ET) has a 7.1% yield. While the MLP cut its distribution by 50% in 2020 to retain additional cash, it has raised its payout every quarter since late 2021. Its distribution is now about 10% above the pre-pandemic level. Energy Transfer aims to continue increasing its distribution each quarter, targeting annual growth of 3% to 5%.
The MLP is now in its strongest financial position in history. Last year, Energy Transfer generated $8.2 billion in cash, easily covering the $4.6 billion it distributed to investors. The company’s leverage ratio is also in the lower half of its target range. That’s giving it the financial flexibility to invest in expansion projects.
Energy Transfer expects to invest at least $5 billion into expansion projects this year. It has a long list of projects under construction that should enter service through 2030. That should give it the fuel to support its distribution growth plan.
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MPLX
MPLX (NYSE: MPLX) has the highest yield in this trio at 7.7%. The MLP has increased its distribution every year since its formation in 2012. It has grown the payout at a robust 11.6% compound annual rate since 2022.
The MLP’s high-yielding payout is on rock-solid ground. It generated enough cash to cover its distribution by a comfy 1.4 times last year, enabling it to retain significant cash to fund its continued expansion. The company also has a conservative 3.7 times leverage ratio, well below the 4.0 times range its stable cash flows can support.
MPLX’s strong financial profile gives it the flexibility to continue investing in growing its business. It invested $5.5 billion into growth capital projects and acquisitions last year and plans to spend at least $2.4 billion on expansion projects in 2026. It currently has projects lined up to enter commercial service through 2029. These expansions should support mid-single-digit earnings growth and continued distribution increases.
High-quality, high-yielding income stocks
MLPs can be a great source of passive income. They generate lots of stable cash flow, enabling them to pay lucrative distributions while also investing to grow their operations to support future payout increases. Enterprise Products Partners, Energy Transfer, and MPLX lead the sector with their combination of financial strength and growth, making them ideal pipeline stocks to buy and hold long-term for income.
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Matt DiLallo has positions in Energy Transfer and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.