Investing

6 Blue Chip Energy MLPs That All Pay Huge Dividends

Lee Jackson

Published: March 26, 2024 8:20 am

Last Updated: March 29, 2024 7:25 am

Since topping out at $120 in the summer of 2022, the major oil benchmarks had traded down every month until bottoming at the beginning of December that year. The decline from the top in June of 2022 was a staggering 40%, and while the oil majors can still make money at that level, with a declining price, many opted to slow or halt production. By March of last year, West Texas Intermediate had dropped to $67.61, a bottom that stayed in place until late June when oil broke out.

After the breakout and move to over $90 per barrel, oil hit a wall in late September and had dropped 22% until recently. Brent crude has traded back over the $85 level in a solid move higher, while West Texas Intermediate is back over $80. Some in the industry have cited that many felt the U.S. economy was headed toward a recession last year, which never appeared but could later this year. 

This all occurred despite war breaking out in the Middle East after the devastating Hamas attack on Israel last October. Now that war has expanded, there are worries that Iran could become more involved as Israel turns its attention to Hezbollah. If oil supplies are threatened in the region, prices could explode higher.

One of the best ideas for investors looking to add energy to their portfolios is master limited partnerships, or MLPs. They pay big and dependable dividends, and many energy master limited partnerships are midstream companies that control the movement or storage of oil and natural gas via contract pricing with the big oil producers.

We screened our 24/7 Wall Street MLP research database, looking for top companies that pay ultra-yield high distributions to their shareholders. Six top companies hit our screen, including a 2023 initial public offering set to pay shareholders incredible distributions.

Enterprise Products Partners

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This company is one of the largest publicly traded energy partnerships and pays a 6.95% dividend. Enterprise Products Partners L.P. (NYSE: EPD) provides various midstream energy services, including:

• Gathering
• Processing
• Transporting and storing natural gas, natural gas liquids (NGL) fractionation
• Import and export terminalling
• Offshore production platform services

The company has four reportable business segments:

• Natural Gas Pipelines and Services
• NGL Pipelines and Services
• Petrochemical Services
• Crude Oil Pipelines and Services

One of the reasons many analysts may like the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above 1x, making it relatively less risky in the MLP sector.

Energy Transfer

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The top master limited partnership is a safe way for investors looking for energy exposure and income, as the company pays a massive 8.10% distribution. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all of the major domestic production basins.

The company is a publicly traded limited partnership with core operations that include:

• Complementary natural gas midstream, intrastate, and interstate transportation and storage assets
• Crude oil, natural gas liquids (NGL), and refined product transportation and terminalling assets
• NGL fractionation
• Various acquisition and marketing assets

After purchasing Enable Partners in December 2021, Energy Transfer owns and operates more than 114,000 miles of pipelines and related assets in 41 states, covering all of the major U.S. producing regions and markets. This further solidifies its leadership position in the midstream sector.

Through its ownership of Energy Transfer Operating L.P., formerly known as Energy Transfer Partners L.P., the company also owns Lake Charles LNG Company, as well as the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco L.P. (NYSE: SUN), and the public partner interests and 39.7 million standard units of USA Compression Partners L.P. (NYSE: USAC).

Hess Midstream

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This is the limited partnership midstream arm of one of the country’s top energy companies, which is being purchased by Chevron Corp. (NYSE: CVX) and pays a stellar 7.11% dividend. Hess Midstream LP (NYSE: HESM) owns, develops, operates, and acquires midstream assets.

The company operates through three segments:

• Gathering
• Processing and Storage
• Terminating and Exporting

The gathering segment owns natural gas gathering and crude oil gathering systems and produces water gathering and disposal facilities.

Its gathering system consists of approximately:

• 1,350 miles of high and low-pressure natural gas and natural gas liquids gathering pipelines with a capacity of about 450 million cubic feet per day.
• The crude oil gathering system comprises approximately 550 miles of crude oil gathering pipelines.

The Processing and Storage segment comprises:

• Tioga Gas Plant, a natural gas processing and fractionation plant located in Tioga, North Dakota
• 50% interest in the Little Missouri 4 gas processing plant located south of the Missouri River in McKenzie County, North Dakota
• Mentor Storage Terminal, a propane storage cavern, and rail and truck loading and unloading facility located in Mentor, Minnesota

The Terminaling and Export segment owns the Ramberg terminal facility, Tioga rail terminal, crude oil rail cars, Johnson’s Corner Header System, and a simple oil pipeline header system.

Mach Natural Resources

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This 2023 IPO is trading below the initial price and will pay a reported gigantic 20.46% dividend. Mach Natural Resources L.P. (NYSE: MNR) is an independent upstream oil and gas company focused on the acquisition, development, and production of oil, natural gas, and natural gas liquids reserves in the Anadarko Basin region of Western Oklahoma, southern Kansas, and the Texas panhandle.

The analysts at Raymond James noted that Mach is led by Tom Ward, Co-Founder of Chesapeake Energy. Mach is another entrant into the E&P MLP space. It is a pure-play operator in the Anadarko Basin, leveraging its strong position (1 million net acres) to become the primary consolidator in the region.

Mach’s midstream position and lower base decline (~20%) allow the company to target a lower reinvestment rate (~30%) relative to the overall industry.

MPLX

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This company is one of the top holdings in the Alerian MLP energy exchange-traded fund and pays a healthy 8.38% dividend. MPLX L.P. (NYSE: MPLX) is primarily engaged in transporting crude oil and refined products and terminating in the US Midwest and Gulf Coast regions and natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. Independent US refiner Marathon Petroleum Corp. (NYSE: MPC) formed MPLX.

The company’s assets include:

• Network of crude oil and refined product pipelines
• Inland marine business
• Light-product terminals
• Storage caverns
• Refinery tanks
• Docks
• Loading racks and associated piping
• Crude and light-product marine terminals

MPLX also owns:

• Crude oil and natural gas gathering systems
• Pipelines, natural gas, and NGL processing and fractionation facilities in key U.S. supply basins

USA Compression Partners

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While perhaps less known than their peers, this top company pays shareholders a hefty 7.67% dividend. USA Compression Partners L.P. (NYSE: USAC) provides natural gas compression services.

The company offers compression services to:

• Oil companies and independent producers
• Processors
• Gatherers
• Transporters of natural gas and crude oil, as well as operating stations

USA Compression Partners primarily provides natural gas compression services to infrastructure applications, including centralized natural gas gathering systems, processing facilities, and gas lift applications for crude oil wells.

Six top companies offering safe and reliable distributions are significant players in the energy infrastructure arena. Those looking for solid total return potential can do well owning these MLP leaders. It’s important to note that MLP distributions may contain a return of principal. Those looking to avoid the pesky K-1s can always purchase shares in the ALPS Alerian MLP exchange-traded fund (NYSE: AMLP), which pays a hefty 7.56% dividend. Investors receive a 1099 instead of a K-1.