Master Limited Partnerships (MLPs) combine the tax benefits of a partnership with the liquidity of publicly traded securities.
They’re one of the most underrated investment classes today and should be considered by anyone looking for steady quarterly income that can be relied on.
Most MLPs are in the energy sector, including oil and gas pipelines, which offer predictable cash flow from these established businesses.
Due to their partnership structure, they’re not subject to corporate income tax. Income is passed through to the partners (investors), who then report it on their personal tax returns. This can provide higher after-tax returns for investors.
Investors in MLPs purchase units instead of shares, but these units are traded on public exchanges just like stocks. MLPs are known for their high distribution yields (dividends) compared to ordinary stocks. The income generated from their operations, such as fees for transporting and storing energy products, is often distributed to investors on a regular basis.
But MLPs aren’t just a high yield dividend play. They offer growth potential through the expansion of their infrastructure, acquisition of new assets, and increasing demand for energy transportation and storage.
MLPs are an attractive investment class if you’re looking for steady income and tax benefits in industries which are already proven.
Below are the top 3 MLPs for 2024:
#3 Enterprise Products Partners (EPD)
Enterprise Products Partners is a midstream oil and gas storage and transportation company, controlling nearly 50,000 miles of pipeline. It has a strong balance sheet with a BBB+ credit rating from Standard & Poor’s.
It’s also “recession-proof.” Although shares dipped slightly in 2008, its strong asset portfolio continued generating cash flow during the Great Recession. Shares rebounded 100% between 2009-2010, while many companies continued suffering during the bear market.
This is one reason Enterprise Products Partners raised its payout for 26 consecutive years and counting. If you buy into it today, you’ll pocket a 7.1% yield.
The company has plenty of cash compared to its distribution payouts, signaling even higher yield potential in the future. “During (Q4 2023), it experienced a significant increase in pipeline volumes across NGL, crude oil, refined products, and petrochemicals, totaling 7.8 million barrels per day (bpd), up from 6.9 million bpd in the same quarter of the previous year,” InvestorPlace.com reported.
There’s also appreciation potential with this play. Shares are up over 100% since March 2020.
#2 MPLX (MPLX)
The #2 MLP on our list is MLPX.
It operates a midstream MLP, meaning it transports and stores oil, natural gas, and natural gas liquids. It currently pays a 8.1% yield, which has increased for 11 consecutive years.
MLPX’s recent earnings report indicates it could generate steady cash flow for years. “In late January, (the company) reported financial results for the fourth quarter of fiscal 2023. Adjusted EBITDA and distributable cash flow per share grew 12% and 9%, respectively, over the prior year’s quarter,” InvestorPlace.com reported.
This MLP has a distribution payout of roughly 63%, meaning it plans to pay out 63% of earnings to shareholders as distributions (similar to dividends). A payout ratio like this suggests the company is keeping a reasonable amount of its earnings to reinvest in the business and to have as a buffer, indicating the distributions are secure and sustainable. There may even be more room for higher distribution payouts in the future.
#1 Brookfield Infrastructure Partners (BIP)
The #1 MLP is Brookfield Infrastructure Partners, which owns a global network of infrastructure companies in utilities, transportation, and energy.
Major assets include transmission and telecommunication lines, toll roads, ports and pipelines. In 2022, the company partnered with Intel to jointly invest $30 billion into a chip manufacturing plant in Arizona.
Brookfield Infrastructure Partners “reported solid Q4 and full-year 2023 results in February. For the year, funds from operations (FFO) rose 9.6% to $2.3 billion…It deployed over $2 billion into new investments in the second half of the year that favorably impacted results,” InvestorPlace.com reported.
It increased its quarterly cash distribution recently by 5.9%. It currently pays a total annual yield of 5.4%.
