Income investors looking for high yields should take a closer look at master limited partnerships (MLPs). These publicly traded limited partnerships benefit from the liquidity of publicly traded companies while enjoying tax benefits of a private partnership.
It is common to find MLPs with high yields above 5%, which make them an attractive option for those seeking income from their investments.
This article will discuss three of our top high yield MLPs that we believe will continue to pay high yields to investors.
Sunoco LP (SUN)
Sunoco (NYSE: SUN) is an MLP that distributes a range of fuel products through its wholesale and retail business units. The wholesale unit purchases fuel products from refiners and sells those products to both its own and independently-owned dealers.
In mid-May, the company reported that first quarter revenues totaled $5.5 billion, which was 3% more than the revenues Sunoco generated during the same quarter last year.
Adjusted EBITDA was up 10% year over year, for $242 million during the quarter. Sunoco’s distributable cash flows totaled $176 million during the quarter, which was 10% higher compared to Q1 of 2023. This equated to DCF of $2.07 per share, which covered the dividend easily. For 2024, Sunoco is forecasting EBITDA of $1.46 billion to $1.52 billion to account for the acquisition of NuStar Energy.
In Sunoco’s industry, the company profits from significant scale and revenue consistency. The company is one of Texas’s largest independent fuel distributors, and Sunoco is also among the top distributors of Chevron, Exxon and Valero branded motor fuel in the rest of the U.S. In the fuel wholesale industry, scale is important, as increased scale allows for higher margins and a better negotiating position with suppliers.
Sunoco has made multiple acquisitions to enhance its growth prospects. In 2021, Sunoco acquired eight refined products terminals from NuStar Energy for $250 million. Around the same time, it acquired an additional terminal from Cato. In 2022, Sunoco closed the $190 million acquisition of a processing and terminal facility from Gladieux Partners.
Sunoco’s dividend payout ratio has moved in a wide range throughout its existence, as its cash flow has seen steep ups and downs. It has covered its payout by a factor of 1.9x via distributable cash flows during the last four quarters, meaning the distribution is sustainable. SUN currently yields 6.5%.
Enterprise Products (EPD)
Enterprise Products (NYSE:EPD) was founded in 1968. It is structured as an MLP and operates as an oil and gas storage and transportation company. Enterprise Products has a tremendous asset base which consists of nearly 50,000 miles of natural gas, natural gas liquids, crude oil and refined products pipelines. It also has storage capacity of more than 250 million barrels. These assets collect fees based on materials transported and stored.
In the second quarter, Enterprise reported net income attributable to common unitholders of $1.4 billion, or $0.64 per unit, up 12% year-over-year. This growth was due primarily to higher volumes. Total equivalent pipeline volumes and marine terminal volumes increased by 5% and 18%, respectively. The NGL Pipeline & Services segment grew operating margin by 19%. Distributable cash flow was $1.8 billion, compared to $1.7 billion in the same quarter last year, and DCF provided 1.6x coverage of the distribution.
Enterprise has positive growth potential moving forward, thanks to new projects and exports. It has several billion dollars’ worth of major capital projects currently under construction. They expect all of these projects to come online in the coming years, boosting cash flows. Exports are also a key growth catalyst. Demand for liquefied petroleum gas and liquefied natural gas is growing at a high rate across the world, particularly in Asia.
In terms of safety, Enterprise Products is one of the strongest midstream MLPs. It has credit ratings of BBB+ from Standard & Poor’s and Baa1 from Moody’s, which are higher ratings than most MLPs. It also has a distribution coverage ratio of nearly 2x, leaving room for distribution increases and unit repurchases. Enterprise Products’ high-quality assets generate strong cash flow, even in recessions.
EPD has increased its dividend for 26 consecutive years and currently yields 7.3%.
Alliance Resource Partners (ARLP)
Alliance Resource (NASDAQ:ARLP) is the first publicly traded master limited partnership and the second-largest coal producer in the eastern U.S. Apart from its primary operations of producing and marketing coal to major domestic and international utility users, the company also owns both mineral and royalty interests in premier oil and gas regions, like the Permian, Anadarko and Williston Basins.
Finally, the company provides terminal services, such as transportation and loading of coal and technology products and services. The company generates ~$2.7 billion in annual revenues and is based in Tulsa, Oklahoma.
According to Q2 results posted in late July, revenues for the quarter declined by 7.6% year-over-year to $593.4 million. Lower revenues were primarily the result of lower coal sales volumes, which declined 11.8% primarily due to transportation delays.
This was partially offset by increased coal sales price realizations, which rose 3.8% to $65.30 per ton sold compared to $62.93 per ton sold last year. Net income came in at $100.2 million, or $0.77 per unit, compared to $169.8 million, or $1.30 per unit last year. Management expects another record-breaking year in terms of revenues, driven by a strong coal sales book that mirrors the success of 2023.
Over 90% of its coal sales volumes are committed at similar price levels to last year, signaling a promising outlook. More specifically, the company expects to sell about 34 tons of coal.
ARLP currently yields 11.3%.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
