High dividend yields should be approached with caution. In many cases, stocks with extremely high yields end up reducing or eliminating their payouts if their underlying profits or cash flow can no longer sustain the payout.

Fortunately, there are a select few Master Limited Partnerships that have strong business models, with strong cash flow that sufficiently covers their generous distributions even during recessions. These 3 MLPs have attractive yields above 5%--and just as importantly, have secure payouts.

Enterprise Products Partners LP (EPD)

Enterprise Products Partners is structured as an MLP, and operates as an oil and gas storage and transportation company. Enterprise Products has a tremendous asset base which consists of nearly 50,000 miles of natural gas, natural gas liquids, crude oil, and refined products pipelines. It also has storage capacity of more than 250 million barrels. 

On October 31, 2023, Enterprise Products Partners LP (EPD) announced its Q3 earnings, reporting a net income attributable to common unitholders of $1.3 billion, a decrease from $1.4 billion in Q3 2022. However, Distributable Cash Flow (DCF) remained consistent at $1.9 billion, and distributions declared for the quarter increased by 5.3% to $0.50 per common unit. The company also retained a significant portion of DCF, totaling $773 million for reinvestment in the partnership's growth. 

Enterprise has positive growth potential moving forward, thanks to new projects and exports. It has several billion dollars’ worth of major capital projects currently under construction. They expect all of these projects to come online in the coming years, boosting cash flows. Exports are also a key growth catalyst. Demand for liquefied petroleum gas and liquefied natural gas, or LPG and LNG respectively, is growing at a high rate across the world, particularly in Asia.

In terms of safety, Enterprise Products Partners is one of the strongest midstream MLPs. It has credit ratings of BBB+ from Standard & Poor’s and Baa1 from Moody’s, which are higher ratings than most MLPs. 

As a result, Enterprise Products has been able to raise its distribution to unitholders for 25 years in a row. Enterprise Products has tremendous competitive advantages, primarily its vast network of assets. 

MPLX LP (MPLX)

MPLX LP is another midstream MLP. Like Enterprise Products, MPLX has a large network of midstream infrastructure assets. operates in two segments: Logistics and Storage – which relates to crude oil and refined petroleum products – and Gathering and Processing – which relates to natural gas and natural gas liquids (NGLs). 

In late October, MPLX reported (10/31/23) financial results for the third quarter of fiscal 2023. Adjusted EBITDA and distributable cash flow (DCF) per share grew 9% over the prior year’s quarter, primarily thanks to higher tariff rates and increased gas volumes. MPLX maintained a healthy consolidated debt to adjusted EBITDA ratio of 3.4x and a solid distribution coverage ratio of 1.6. 

With MPLX in particular we are encouraged by the company self-funding on the equity side and getting rid of the IDRs. In the last five years, MPLX has had distribution coverage ratios of 1.36x, 1.51x, 1.46x, 1.64x and 1.6x. Meanwhile, the company’s total debt to adjusted EBITDA has been 3.9x, 4.1x, 3.9x, 3.7x and 3.5x during the same time period (generally MLP’s are shooting for a ratio under 5x). In addition, the revenues of MPLX are reliable thanks to the long-term contracts with parent company Marathon. 

MPLX’s industry generally holds competitive advantages as a result of the toll-booth model of pipelines. While growth potential may be limited, the need for the company’s infrastructure is certainly present. In addition, the revenues of MPLX are reliable thanks to the long-term contracts with parent company Marathon. Overall, the 9% distribution yield of MPLX is safe for the foreseeable future. 

Sunoco LP (SUN)

Sunoco is a Master Limited Partnership that distributes a range of fuel products through its wholesale and retail business units. The wholesale unit purchases fuel products from refiners and sells those products to both its own and independently owned dealers. 

Sunoco reported its third quarter earnings results in November. The company reported that its revenues totaled $6.3 billion during the quarter, which was 4% less than the revenues that Sunoco generated during the previous year’s quarter. Fuel prices were down compared to the previous year’s quarter, which negatively impacted revenues. 

Sunoco reported that its adjusted EBITDA was down 7% year over year, dropping to $257 million during the quarter. Sunoco’s distributable cash flows totaled $181 million during the quarter, which was 8% lower compared to the previous year’s quarter, and which equated to DCF of $2.13 per share, which covered the dividend easily. 

In Sunoco’s industry, the company profits from significant scale and revenue consistency. In Texas, Sunoco is one of the largest independent fuel distributors, and Sunoco is also among the top distributors of Chevron, Exxon, and Valero[1]branded motor fuel in the rest of the United States. In the fuel wholesale industry, scale is important, as increased scale allows for higher margins and a better negotiating position with suppliers.

Sunoco has covered its dividend payout by a factor of 1.9 via distributable cash flows during the last 4 quarters, thus the dividend looks sustainable.