Pipeline companies tend to be excellent investments for those seeking passive income. They generate very stable revenue backed by long-term contracts and government-regulated rate structures. That provides them with the cash flow to pay attractive dividends.
The sector experienced a resurgence last year as an expected uptick in natural gas demand sent most pipeline stocks soaring. While that rally compressed dividend yields across the industry, many pipeline operators still offer attractive yields compared to the broader market. MPLX (MPLX 0.67%) has one of the highest yields in the sector. That’s one of the reasons it’s my top pipeline stock to buy this year for those seeking passive income.
Built on a financial fortress
MPLX currently pays a 7.5%-yielding distribution. That’s several times higher than the S&P 500‘s 1.2% yield.
The master limited partnership’s (MLP) high-yielding payout is on a very sustainable foundation. The midstream company’s diversified business generates stable cash flow backed by government-regulated rate structures and long-term contracts with high-quality customers, including its parent company, refining giant Marathon Petroleum.
MPLX produced about $4.3 billion of net cash provided by operating activities through the first nine months of last year. That covered its distribution payments of $2.6 billion by a comfortable 1.6 times. The MLP used the cash it retained to fund organic expansion projects and acquisitions — about $750 million and $900 million), respectively.
Because MPLX covered its distribution and all growth-related investments with its cash flow, it maintained its fortress-like balance sheet. The MLP ended the third quarter with $2.4 billion of cash and a low 3.4 leverage ratio, well below the 4.0 range its stable cash flows can support. It used some of its financial flexibility to return additional cash to investors last year, repurchasing $226 million of its common units through the third quarter.
The fuel to continue growing
MPLX stands out among its high-yielding peers for its distribution growth. The MLP has increased its distribution every year since its formation in 2012. It has delivered a robust 10.7% compound annual distribution growth rate since 2021, including raising its payout by 12.5% last year.
The company has ample fuel to continue increasing its payout in the future. Organic expansion projects are a major growth driver for the MLP. It currently has several projects under way, including:
- Natural gas processing plants: The MLP completed two new natural gas processing plants last year and has two more under construction, with in-service dates in the second half of 2025 and 2026, respectively.
- BANGL: The company is expanding its BANGL joint venture pipeline to increase natural gas liquids transportation capacity, with a first-quarter 2025 completion date.
- Gas pipelines: MPLX and its partners are building the Blackcomb and Rio Bravo pipelines to transport more natural gas from the Permian Basin to the Gulf Coast. Both pipelines should enter service in the second half of 2026.
Those expansion projects will supply the MLP with additional sources of cash flow when they come online over the next two years. Meanwhile, the company should be able to continue securing additional expansion projects, especially given the expected surge in natural gas demand over the coming years from AI data centers and other growth catalysts.
Acquisitions are another growth driver for MPLX. For example, it enhanced its footprint in the Utica region last year by acquiring additional ownership interests in existing joint ventures and a dry gas gathering system for $625 million in March. The MLP also bought another 20% interest in the BANGL pipeline, boosting its stake to 45%. Finally, MPLX and its partners in the Whistler Pipeline formed a new joint venture with Enbridge to combine it with the Rio Bravo Pipeline project. They subsequently approved the construction of the related Blackcomb pipeline.
MPLX has ample financial flexibility to continue making accretive acquisitions and joint venture investments as opportunities arise. It owns interests in several other joint ventures that it could look to consolidate. In addition, the MLP could acquire midstream assets, buy pipeline companies, or form additional joint ventures to enhance its footprint and growth profile.
A high-octane income stock
MPLX pays investors a very lucrative cash distribution these days. Given the company’s strong financial profile and visible growth prospects, that payout could continue rising at an above-average rate. Those features make it stand out as the top pipeline company to buy for passive income this year, as long as investors are comfortable receiving the Schedule K-1 federal tax form the MLP sends them each year.
