Understanding High-Yield MLPs
For income investors, Master Limited Partnerships (MLPs) present a noteworthy opportunity for high yields. Many of these partnerships offer yields of 5% or more, with some even reaching impressive double-digit figures.
However, it’s crucial for investors to be discerning rather than merely chasing the highest yields. Some higher-yielding options may come with weak fundamentals, potentially leading to distribution cuts. A wise approach is to identify MLPs that not only provide high yields but also ensure sustainable payouts.
This article highlights three top-performing MLPs that consistently yield above 5%, while also demonstrating potential for sustainable distributions that can endure through economic downturns.
1. Hess Midstream LP (HESM)
Hess Midstream Partners LP (NYSE: HESM) specializes in managing midstream assets located in prominent plays in North Dakota. The company offers comprehensive oil, gas, and water midstream services, primarily catering to Hess and various third-party clients.
With long-term commercial contracts extending through 2033, Hess Midstream has established a solid foundation for revenue stability. The nature of these contracts is entirely fee-based, which helps shield the partnership from fluctuations in commodity prices. Notably, approximately 85% of Hess Midstream's revenue is secured through minimum-volume commitments.
In its latest quarterly report, Hess Midstream showcased robust growth. Throughput volumes for gas processing rose by 8%, while oil terminaling and water gathering volumes increased by 7% and 9%, respectively, year-over-year. Revenue for the quarter grew by 7%, with earnings per share rising from $0.60 to $0.65.
Management remains optimistic about 2025, projecting a 10% increase in throughput volumes and a minimum of 5% annual growth in distributions through 2027. Anticipated reductions in leverage ratios reinforce the partnership’s commitment to increasing distributions annually.
With a current yield of 6.8%, Hess Midstream remains a compelling option for income-focused investors.
2. Enterprise Products Partners LP
Established in 1968, Enterprise Products Partners LP (NYSE: EPD) operates as a leading oil and gas storage and transportation master limited partnership. It manages an extensive asset network, comprising nearly 50,000 miles of pipelines covering natural gas, natural gas liquids, crude oil, and refined products, alongside over 250 million barrels of storage capacity.
Recently, Enterprise Products reported its financial results for the first quarter of 2025, revealing a net income attributable to common unitholders of $1.4 billion, translating to $0.64 per diluted unit. This marks a slight decrease from $1.5 billion reported during the same period in the prior year.
The company reported significant growth in distributable cash flow (DCF), which rose by 5% year-over-year, allowing the partnership to retain significant amounts for reinvestment while maintaining a distribution coverage ratio of nearly 2x.
Enterprise Products’ ability to consistently generate strong cash flows has led to 27 consecutive years of distribution increases. They currently yield 6.9%, positioning them as a stalwart in the industry.
3. Brookfield Infrastructure Partners LP (BIP)
Brookfield Infrastructure Partners LP (TSX: BIP) stands out as one of the largest global operators of infrastructure networks, managing a diverse range of assets across sectors like energy, water, and transportation. The partnership, based in Bermuda, is recognized for its strategic investments aimed at long-term growth.
In its recent financial report for Q1 2025, Brookfield Infrastructure Partners demonstrated resilience, achieving funds from operations of $646 million, which reflects a significant increase of 5% compared to last year. The partnership also made considerable progress towards its objectives by generating almost $1.4 billion in sale proceeds.
A portion of these proceeds is earmarked for strategic acquisitions, including significant investments in refined product systems boasting a strong performance history. This year, they aim to target $1.5 billion annually in new investments.
Brookfield Infrastructure maintains an impressive track record, increasing its dividend for 16 consecutive years. They recently raised their quarterly distribution by 6%, marking a commitment to return cash to unitholders, with a current yield of 5.4%.
Frequently Asked Questions
What are Master Limited Partnerships (MLPs)?
Master Limited Partnerships (MLPs) are business entities that operate in the energy sector, offering tax benefits and high yields, making them attractive for income-focused investors.
Why should investors focus on MLPs with sustainable payouts?
Sustainable payouts ensure that distributions are reliable and not at risk of reduction, providing a steadier income stream for investors.
How often do MLPs typically pay distributions?
Most MLPs distribute cash to unitholders on a quarterly basis, though the specific schedule might vary per partnership.
What factors contribute to the growth of an MLP?
MLP growth is influenced by market demand for energy, the efficiency of operations, capital investments, and the overall economic environment.
Are MLPs impacted by commodity price fluctuations?
While MLPs can be affected by commodity prices, partnerships with fee-based contracts mitigate this risk significantly by providing stable revenue.
