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3 Midstream Favorites for Rising Quarterly Payouts

11/06/2019 5:00 am EST

Focus: ENERGY

Tim Plaehn

Investment Research Analyst, Investors Alley

Before the energy sector bear market that started in late 2014, most energy midstream companies increased their dividends every single quarter, recalls Tim Plaehn, editor of The Dividend Hunter.

Back in the good old days, the free cash flow generated by the midstream assets were almost entirely paid out as distributions to investors.

That party stopped with the sector crash, and now most midstream companies retain more of their free cash flow to help pay for growth projects.

However, here are three energy midstream companies that have just announced dividend increases and should continue to boost their payouts every quarter for many years to come.

Phillips 66 Partners LP (PSXP) is an MLP that primarily provides midstream services to its sponsor, refining company Phillips 66 (PSX). PSXP owns and operates crude oil gathering systems, crude oil pipelines, refined product pipelines, storage systems, and crude oil rail terminals.

The company describes itself as a growth-focused MLP, with the goal of growing distribution to investors. The quarterly payout has been increased every quarter since PSXP’s mid-2013 IPO.

The distribution was just increased by 1.2%, which provides 9% dividend growth over the last year. Expect high single-digit growth going forward. The shares currently yield 6.3%.

Magellan Midstream Partners LP (MMP) is an independent (no corporate sponsor or general partner) MLP. Magellan has 9,700-mile refined products pipeline system with 53 connected terminals as well as 25 independent terminals not connected to the pipeline system and 1,100-mile ammonia pipeline system.

In addition, the company owns approximately 2,200 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of about 33 million barrels. Storage across the network total more than 100 million barrels.

The MMP distribution has been increased since the company was launched in early 2001. The most recent increase to be paid in November was the 70th consecutive increase. In recent years, the payout has grown by an annual compounding high single-digit rate. MMP currently yields 6.4%.

Oneok, Inc. (OKE) operates natural gas liquids (NGLs) systems. The network connects NGL supply in the Mid-Continent, Permian, and Rocky Mountain regions with key market centers and an extensive network of natural gas gathering, processing, storage and transportation assets.

Oneok is structured as a corporation. In 2017 the company absorbed the MLP it controlled. The OKE dividend has been increased every quarter since that merger in mid-2017. The just-announced dividend to be paid in November was up 2.8% from the previous payout. OKE yields 5.1%.

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