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MPLX LP's Strong 6.4% Yield Is Set To Grow

Jul. 06, 2017 10:31 AM ETMPLX LP (MPLX)MPC12 Comments
Callum Turcan profile picture
Callum Turcan


  • MPLX LP's 6.4% yield is well covered and set to grow, a boon for Marathon Petroleum Corporation as well.
  • An eye on major expansions in Appalachia in light of recently formed JV.
  • Completion of major dropdown from from Marathon Petroleum supports strong near term growth at MPLX LP.
  • Purchase of pipeline from third party created organic growth opportunity MPLX LP quickly jumped on.
  • Debt load a concern.

MPLX LP (NYSE:NYSE:MPLX) is a major midstream player along the Gulf Coast and Appalachia region. Gathering, processing, marketing, and storing dry gas and NGLs produced in the Marcellus and Utica shale plays is a key part of MPLX LP's business. Let's take a lot at how this ~6.4% yield is doing in light of the ongoing turbulence in the oil & gas space.

This article touches on Marathon Petroleum Corporation (NYSE:MPC) as MPLX LP is its midstream spin off. Marathon Petroleum is expecting to get $1.2 billion - $1.4 billion in annual distributions from its stake in MPLX LP after the IDR exchange.


The amount of cash that midstream master limited partnerships can pay out to their unitholders is largely determined by the MLP's distributable cash flow streams. MPLX grew its DCF streams from $236 million in Q1 2016 to $354 million in Q1 2017. By pushing its distribution coverage ratio (DCF dividend by payouts to unitholders) up to 1.29X in Q1 2017 from 1.18X a year earlier, MPLX was able to increase its distribution per unit by 6.9% y-o-y.

On a quarter-over-quarter basis, MPLX's coverage ratio rose from 1.25X in Q4 2016 to 1.29X in Q1 as its DCF streams climbed from $318 million to $354 million. MPLX increased its distribution from $0.52 to $0.54 q-o-q.

MPLX has a well covered distribution with room to support additional payout growth. A coverage ratio over 1.10X is nice, 1.15X ideal, and anything over 1.20X means there is room to grow. Fiscal discipline is good to see, as DCF growth outpaced payout growth implying a cautious strategy in light of the volatile pricing environment.

By the end of Q1, MPLX had $811 million in current assets stacked against $712 million in current liabilities and $6.65 billion in long term debt. While its near term liquidity situation

This article was written by

Callum Turcan profile picture
Worked as an equity analyst for several years in the USA and have been writing financial articles and analyzing publicly traded companies for more than a decade.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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