Midstream energy stocks are the companies involved in the processing, transportation, and storage of crude oil, natural gas, and natural gas liquids. These companies operate in the midstream sector, which falls between the upstream (exploration and production) and downstream (refining and marketing) sectors of the energy industry. They are far less susceptible to spot benchmark pricing moves, as most sector leaders have locked in contracts for their services, some of which run for years. We decided to screen the sector for the highest-yielding companies that make sense for growth and income investors seeking to generate dependable passive income.
24/7 Wall St. Key Points:
Volatility in the Middle East and strong summer demand have helped support benchmark pricing.
OPEC+ will be raising production output again in August.
Ultra-high-yield midstream MLPs make sense for growth and income investors looking for safe passive income.
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One of the best ideas for investors seeking to diversify their portfolios with energy exposure at current pricing is master limited partnerships (MLPs). They pay substantial and dependable dividends, and many energy master limited partnerships are midstream companies that control the movement or storage of oil and natural gas through contract pricing with major oil producers.
We screened our 24/7 Wall St. midstream MLP research database, looking for top companies that pay ultra-yielding high distributions to their shareholders. Four top companies are set to hit our screens, and all are poised to pay shareholders incredible and dependable distributions. Additionally, all four are Buy-rated by the top Wall Street firms we cover.
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 option for investors seeking energy exposure and income, as the company pays a substantial 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, natural gas liquids (NGL), and refined product transportation and terminalling assets
NGL fractionation
Various acquisition and marketing assets
Following the acquisition of Enable Partners in December 2021, Energy Transfer owns and operates over 114,000 miles of pipelines and related assets in 41 states, spanning all 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 Company, the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco L.P. (NYSE: SUN), and the public partner interests and 39.7 million standard units of USA Compression Partners L.P. (NYSE: USAC).
J.P. Morgan has assigned an Overweight rating, accompanied by a $23 target price.
MPLX
MPLX L.P. (NYSE: MPLX) is a diversified, large-cap master limited partnership formed by Marathon Petroleum Corp. (NYSE: MPC). This company is one of the top holdings in the Alerian MLP Energy ETF and pays a healthy dividend. MPLX is primarily engaged in transporting crude oil and refined products, with termini in the U.S. Midwest and Gulf Coast regions, as well as natural gas gathering and processing in the Northeast, following its acquisition of MarkWest Energy in 2015.
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 a $59 target to accompany its Overweight rating.
Plains All American Pipeline
This stock has been locked in a tight trading range, looks ready to break out, and pays a huge dividend. Plains All American Pipeline L.P. (NYSE: PAA) engages in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada.
The company operates in two segments.
The Crude Oil segment offers:
Gathering and transporting crude oil through pipelines
Gathering systems
Trucks, barges, or railcars
Terminalling, storage, and other facilities-related services and merchant activities
The Natural Gas Liquids segment provides:
Gathering
Fractionation
Storage
Transportation
Terminalling activities
Ethane, propane, normal butane, iso-butane, natural gasoline, and crude oil refining processes
Mizuho has an Outperform rating with a $22 target price.
Western Midstream Partners
While somewhat off the radar, this is the highest-yielding stock in this group and offers an outstanding entry point. Western Midstream Partners L.P. (NYSE: WES) acquires, owns, develops, and operates midstream assets.
The company is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas, as well as gathering, stabilizing, and transporting condensate, NGLs, and crude oil. Additionally, the company gathers and disposes of produced water.
The midstream assets are located in:
Texas
New Mexico
Colorado
Utah
Wyoming
In addition, as a natural gas processor, the Company also buys and sells natural gas, NGLs, and condensate on its behalf and as an agent for its customers under specific contracts. The company’s subsidiaries include:
Western Midstream Operating GP
Western Midstream Services
Western Midstream Services Holdings
Western Midstream Operating
Consider This Exchange Traded Fund (ETF)
Those looking to avoid the pesky K-1s can always purchase shares in the ALPS Alerian MLP ETF (NYSE: AMLP), which pays a substantial 8.03% dividend. Investors receive a 1099 instead of a K-1.
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