The April meltdown in the oil patch was likely a scenario many top analysts and most of Wall Street did not see coming. Every possible item that could weigh on the spot price of the major oil benchmarks came to pass. Production cuts by OPEC+, the potential for tariffs to impact the sector, and a slowing economy that has traders worried about demand, are all pressure points on the black gold.
Although the market has been highly volatile, there is a good chance that a second negative gross domestic product print in July could usher in a recession. These are additional reasons that value growth and income investors looking to bottom fish and add top stocks in the sector should remain cautious and perhaps consider adding the top energy master limited partnerships (MLPs).
MLPs pay reliable dividends, and many energy MLPs are midstream companies that control the movement or storage of oil and natural gas through contract pricing with major oil producers. So, the drop in benchmark pricing does not have as much effect as it does on the large integrated giants.
We screened our 24/7 Wall St. MLP energy dividend stock research database looking for companies that pay substantial and dependable dividends. We identified four, and all appear to have significant upside potential relative to the posted target prices at some of the top Wall Street firms, which have Buy ratings on the shares. In addition, they are not solely dependent on benchmark pricing to generate revenue, which could be crucial if prices stay at the lowest levels in years.
Why do we cover high-yield dividend MLP stocks?
Energy MLPs offer investors a reliable source of passive income. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Enterprise Products Partners
This company is one of the largest publicly traded energy partnerships, and it pays a big and dependable dividend. Enterprise Products Partners L.P. (NYSE: EPD | EPD Price Prediction) provides various midstream energy services, including:
- Gathering
- Processing
- Transporting and storing natural gas, natural gas liquids (NGLs) 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 reason many analysts may like the stock is its distribution coverage ratio. The company’s coverage ratio is well above 1x, making it relatively less risky in the MLP segment.
J.P. Morgan has an Overweight rating with a $38 target price.
Energy Transfer
Energy Transfer L.P. (NYSE: ET) is one of North America’s largest and most diversified midstream energy companies. This top MLP is a safe way for investors looking for energy exposure and income, as the company pays a massive distribution. Energy Transfer 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, NGLs, 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, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG; the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco; and the public partner interests and 39.7 million standard units of USA Compression Partners.
Morgan Stanley has an Overweight rating with a $26 target price.
Hess Midstream
This fee-based, growth-oriented midstream company owns, operates, and develops diverse midstream assets. Hess Midstream L.P. (NYSE: HESM) is the limited partnership midstream arm of one of the country’s top energy companies, which owns 38% of the company and pays a stellar dividend.
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.
Citigroup has a Buy rating on the shares with a $44 price objective.
MPLX
This company is one of the top holdings in the Alerian MLP energy exchange-traded fund, and it pays a healthy dividend. MPLX L.P. (NYSE: MPLX) primarily transports crude oil and refined products, terminating in the U.S. Midwest and Gulf Coast regions, and natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. Independent U.S. refiner Marathon Petroleum formed and owns the general partner and a majority limited partner interest in 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
Wells Fargo has an Overweight rating with a $59 target price.
Alerian MLP ETF
Those looking to avoid the pesky K-1s associated with energy master limited partnerships can always purchase shares in the ALPS Alerian MLP Exchange-Traded Fund (NYSE: AMLP). This fund pays a hefty 7.89% dividend quarterly. Investors receive a 1099 instead of a K-1. The ETF portfolio includes all four of these top stocks above, as well as nine other industry leaders.
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