Better Dividend Stock: MPLX vs. Energy Transfer

When it comes to investing in dividend stocks, two prominent midstream energy companies often stand out: MPLX (MPLX) and Energy Transfer LP (ET). Both companies offer attractive yields and have strong financial profiles, but which one is the better choice for income investors? Let's compare their dividend growth, cash flow drivers, and growth prospects to help you make an informed decision.

MPLX vs. Energy Transfer Dividend Comparison

Dividend Growth Comparison: MPLX vs. Energy Transfer (2019-2024)

Energy Transfer LP (ET) and MPLX (MPLX) are both prominent midstream energy companies, offering attractive dividend yields. ET currently yields nearly 7%, while MPLX is over 8%. To evaluate their dividend growth and consistency, let's examine their historical performance.

From 2019 to 2024, ET's annual dividend grew from $1.20 to $1.29, representing a 7.5% compound annual growth rate (CAGR). MPLX, on the other hand, increased its annual dividend from $2.20 to $2.75 over the same period, achieving a 6.5% CAGR. Both companies have maintained consistent dividend growth, with ET raising its payout for 12 consecutive quarters and MPLX increasing its distribution for three straight years, including a 12.5% hike in 2024.

While ET's dividend growth rate is slightly higher, MPLX's dividend yield is more attractive. Both companies have strong financial profiles, with distribution coverage ratios above 1.5x and leverage ratios within their target ranges. MPLX's higher yield and recent distribution growth make it an appealing choice for income investors, but ET's slightly higher dividend growth rate and diversified asset mix may offer more long-term potential.

Cash Flow Drivers: MPLX vs. Energy Transfer

Both MPLX and Energy Transfer generate stable cash flows, primarily through fee-based activities, which support their lucrative dividend payouts. MPLX's cash flow is driven by long-term contracts and government-regulated rate structures, with most assets generating fee-based cash flow (90% of its earnings). Energy Transfer, a giant in the midstream sector, also has a diversified and well-balanced asset mix that primarily generates fee-based cash flows (90% of its earnings) secured by long-term contracts and government-regulated rate structures. Both companies have strong financial profiles, with Energy Transfer aiming for a leverage ratio in the lower half of its 4.0x-4.5x target range and MPLX's leverage ratio well below the 4.0 times range its stable cash flows can support.

Growth Prospects: MPLX vs. Energy Transfer

Both MPLX and Energy Transfer have robust growth prospects and expansion projects that support their long-term dividend sustainability. MPLX has several projects underway, including the Blackcomb and Rio Bravo natural gas pipelines, and the BANGL natural gas liquids pipeline expansion. These projects are expected to come online through 2026, providing incremental cash flow and enhancing MPLX's growth profile. Energy Transfer, on the other hand, has projects like the Nederland Flexport Expansion Project and the Hugh Brinson Pipeline, which will also contribute to its cash flow growth. Additionally, Energy Transfer's acquisition of WTG Midstream in 2023 will boost its cash flow through 2027. Both companies' strong financial profiles and growth prospects indicate their ability to sustain and increase their dividend payouts in the long term.

In conclusion, both MPLX and Energy Transfer are attractive dividend stocks with strong financial profiles and growth prospects. While MPLX offers a higher yield and recent distribution growth, Energy Transfer's slightly higher dividend growth rate and diversified asset mix may provide more long-term potential. Ultimately, the choice between these two companies depends on your investment goals and risk tolerance. Income investors seeking a higher yield may prefer MPLX, while those looking for long-term growth and a more stable distribution may lean towards Energy Transfer.