In this article, we discuss 11 best MLP dividend stocks to buy. You can skip our detailed analysis of the MLP dividend stocks and their performance over the years, and go directly to read 5 Best MLP Dividend Stocks To Buy.
Master Limited Partnerships (MLPs) are a type of business structure that combines the tax benefits of a partnership with the liquidity of publicly traded securities. MLPs are often involved in energy infrastructure, such as pipelines and storage facilities. The S&P MLP Index offers investors the opportunity to invest in the prominent partnerships listed on the NYSE and NASDAQ. This index encompasses both MLPs and publicly traded limited liability companies (LLCs) that share a comparable legal structure to MLPs, along with similar tax advantages. As of the beginning of 2024, the index has seen a 2.07% increase, demonstrating a closely competitive performance with the broader market, which has gained 2.27% year-to-date.
Despite the broader challenges faced by equity markets in the third quarter of 2024, Energy MLP stocks demonstrated resilience and outperformed. The Alerian MLP Index showed a robust return of 9.89%, contrasting with the S&P 500 Index, which experienced a decline of 3.27%. This positive performance can be attributed to a combination of factors, including supply cuts from OPEC+ and reduced U.S. inventories, which led to an increase in oil prices. While higher oil prices contributed to concerns about inflation and interest rates, these conditions created a favorable environment for energy stocks. The strength in Energy MLP stocks not only marked a bright spot in a challenging quarter for equities but also showcased their ability to navigate and thrive amid market uncertainties. According to a Franklin Templeton report, the U.S. midstream sector is anticipated to have strong upside potential. This positive outlook is attributed to improving financial metrics and persistent low valuations, even in the face of robust performance observed in 2022 and up to the third quarter of 2023.
MLP stocks are often renowned for their attractive dividend yields, making them popular among income-seeking investors. Returns from MLPs come from dividend yield, dividend growth, and changes in valuation. As of September 2023, MLP distribution yields stand at 8.08%, and there is a projected 3.70% growth in distributions over the next five years, as reported by a Boston-based firm, NWB Capital LLC. The report also mentioned that these two factors alone suggest a noticeable 11.78% annual rate of return expectation in the coming years. The firm anticipated that this almost 12% annual total return would likely be further boosted by a potential increase in valuation. This means that MLPs might trade at a higher value compared to their historical median valuation based on cash flow. This combination of attractive yields, distribution growth, and potential valuation expansion makes MLPs an appealing option for investors seeking both income and potential capital appreciation.
Furthermore, the stability of cash flow plays a crucial role in sustaining substantial dividends, contributing to an increased total return, and reinforcing the defensive characteristics of midstream Master Limited Partnerships (MLPs). There has been a notable trend favoring dividend growth within the MLPs and midstream sector, underpinned by the generation of free cash flow. Currently, MLPs allocate approximately 50% of their distributable cash flow to dividends, according to NWB Capital’s report. To put it differently, the distributable cash flow covers distributions by a factor of 2.0. This robust coverage stands in favorable contrast to the historically lower coverage, often less than 1.2 times, observed over an extended period. The improved coverage ratio signifies a more resilient and sustainable distribution model for MLPs and midstream entities. Energy Transfer LP (NYSE:ET), Enterprise Products Partners L.P. (NYSE:EPD), and Brookfield Infrastructure Partners L.P. (NYSE:BIP) are some of the best MLP dividend stocks that are discussed among others in this article.
11 Best MLP Dividend Stocks To Buy
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Our Methodology:
For this list, we scanned Insider Monkey’s database of 910 hedge funds for the third quarter of 2023 and picked companies that have adopted the MLP structure for their operations. MLPs are commonly found in the energy sector, particularly in midstream energy activities. From that list, we chose companies that pay dividends to shareholders and narrowed it down further to 11 companies that have stable dividend histories. The stocks are ranked in ascending order of the number of hedge funds having stakes in them at the end of Q3. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
USA Compression Partners, LP (NYSE:USAC) is a Texas-based MLP that is engaged in providing natural gas compression services to the energy industry in the US. In the third quarter of 2023, the company reported revenue of $217 million, which showed a 20.9% growth from the same period last year. Its operating cash flow for the quarter came in at over $50 million, up from $49.2 million in Q3 of 2022.
USA Compression Partners, LP (NYSE:USAC) has been making regular dividend payments to shareholders since 2015. It currently pays a quarterly dividend of $0.525 per share and has a dividend yield of 8.15%, as of January 22. Energy Transfer LP (NYSE:ET), Enterprise Products Partners L.P. (NYSE:EPD), and Brookfield Infrastructure Partners L.P. (NYSE:BIP) are some other MLP dividend stocks popular among investors.
At the end of Q3 2023, Citadel Investment Group was the only stakeholder of USA Compression Partners, LP (NYSE:USAC), owning 600 shares worth $14,316.
CrossAmerica Partners LP (NYSE:CAPL) is an American MLP that is involved in the wholesale distribution of motor fuels and owns, leases and operates convenience stores. The company offers a quarterly dividend of $0.525 per share for a dividend yield of 8.98%, as recorded on January 22. It is among the best MLP dividend stocks on our list.
In the third quarter of 2023, CrossAmerica Partners LP (NYSE:CAPL) reported a strong cash position. The company's distributable cash flow for the quarter came in at $31.4 million. The company ended the quarter with nearly $5.8 million available in cash and cash equivalents.
Citadel Investment Group was the only stakeholder of CrossAmerica Partners LP (NYSE:CAPL) at the end of Q3 2023, as per Insider Monkey's database. The total value of these stakes is $658,140.
NuStar Energy L.P. (NYSE:NS) is engaged in the transportation and storage of crude oil, refined products, and specialty liquids. As an MLP, the company has a unique corporate structure that allows it to combine the tax benefits of a limited partnership with the liquidity of publicly traded securities. It was a part of 2 hedge fund portfolios at the end of Q3 2023, up from 1 in the previous quarter, according to Insider Monkey's database. These stakes have a total value of over $5.2 million.
NuStar Energy L.P. (NYSE:NS) generated $410.3 million in revenues in the third quarter of 2023, which beat analysts' estimates by $22.3 million. Its net income for the quarter came in at $51 million.
NuStar Energy L.P. (NYSE:NS) currently pays a quarterly dividend of $0.40 per share. With a dividend yield of 7.50%, NS is one of the best MLP dividend stocks on our list.
An American MLP, Sunoco LP (NYSE:SUN) operates in the wholesale distribution and retail marketing of motor fuels. It also owns and operates convenience stores and gas stations. These retail locations often carry the Sunoco brand and offer various convenience store products in addition to motor fuels.
Sunoco LP (NYSE:SUN) currently offers a quarterly dividend of $0.842 per share, having raised it by 2% in April 2023. The stock has a dividend yield of 5.91%, as recorded on January 22. It is one of the best MLP dividend stocks on our list as the company has been paying uninterrupted dividends to shareholders since 2012.
As of the close of Q3 2023, 2 hedge funds tracked by Insider Monkey reported having stakes in Sunoco LP (NYSE:SUN), compared with 3 in the preceding quarter. These stakes have a collective value of nearly $3 million.
Western Midstream Partners, LP (NYSE:WES) operates in the midstream sector, providing infrastructure and services to facilitate the movement of oil and natural gas from the production areas to end-users. The company generated strong cash in the third quarter of 2023. Its operating cash flow for the quarter came in at $394.8 million and its free cash flow stood at $200.4 million.
On January 21, Western Midstream Partners, LP (NYSE:WES) declared a quarterly dividend of $0.575 per share, which was consistent with its previous dividend. The company raised its dividends twice last year, which makes WES one of the best MLP dividend stocks on our list. The stock offers a dividend yield of 8.07%, as of January 22.
Insider Monkey's database of Q3 2023 showed that 5 hedge funds owned stakes in Western Midstream Partners, LP (NYSE:WES), compared with 6 in the previous quarter. These stakes are worth roughly $20 million in total. Among these hedge funds, Heronetta Management was the company's leading stakeholder in Q3.
Texas-based MLP, Black Stone Minerals, L.P. (NYSE:BSM) is engaged in the ownership and management of mineral and royalty interests in oil and natural gas properties. The company has raised its dividends multiple times since the pandemic of 2020 and currently pays a quarterly dividend of $0.475 per share. The stock has a dividend yield of 11.68%, as recorded on January 22. Its solid dividend history makes BSM one of the best MLP dividend stocks on our list.
In addition to BSM, Energy Transfer LP (NYSE:ET), Enterprise Products Partners L.P. (NYSE:EPD), and Brookfield Infrastructure Partners L.P. (NYSE:BIP) offer reliable investment options from the MLP sector.
As of the end of the September quarter of 2023, 7 hedge funds tracked by Insider Monkey held stakes in Black Stone Minerals, L.P. (NYSE:BSM), down slightly from 8 in the preceding quarter. These stakes have a consolidated value of over $18 million. Thomas Clay's Epacria Capital Partners was the largest stakeholder of the company in Q3.
