What MPLX’s Current Distribution Yield Indicates



MPLX’s distribution growth

MPLX (MPLX) declared a distribution of ~$0.56 per common share for the second quarter of 2017. That represents a 4.2% sequential increase and a 10.3% increase over the same quarter in the prior year. It posted a strong coverage of 1.26x in the recent quarter despite its strong distribution growth. It’s targeting a 12.0%–15.0% annual distribution growth by the end of this year. It could most likely meet its distribution guidance considering its strong distribution coverage, low leverage, and recent dropdowns.

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MPLX’s distribution yield

Based on the recent distribution, MPLX is trading at an attractive distribution yield of 6.5%. Its current yield is high compared to the last two-year and one-year averages of 6.1% and 6.2%, respectively. MPLX’s peers Enbridge Energy Partners (EEP) and Oneok (OKE) are currently trading at 7.6% and 5.4%, respectively. MPLX’s current distribution is less than the Alerian MLP ETF (AMLP), which is at 8.0%.

MPLX’s higher distribution yield compared to its historical averages might reflect undervaluation considering its significant expansion opportunities, strong distribution growth guidance, high distribution coverage, low leverage, and strong sponsor support. It has completed more than $3.0 billion of asset dropdowns from its sponsor Marathon Petroleum (MPC) since the beginning of this year. These dropdowns are accretive to MPLX’s distributable cash flows. Its higher distribution yield might reflect its higher commodity price exposure through its natural gas processing and crude oil logistics businesses.


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