1 High-Yield Dividend Stock to Buy in July

The market gave income-seeking investors a gift in June by selling off units of MPLX (NYSE: MPLX), a midstream master limited partnership (MLP). For the month, the pipeline company inexplicably lost about 5% of its value, pushing it down about 4% for the year. Because of that, it trades at an attractive valuation and now yields 7.3%. Those are just some of the factors that make it a compelling income stock to consider buying this month.

A strong foundation

With last month's sell-off, MPLX now trades for less than 11 times cash flow, slightly below the average of most large MLPs. Adding to its appeal is that the company currently generates enough cash to cover its high-yielding distribution by a comfortable 1.29 times, which is well above average in the MLP space. Meanwhile, the company anticipates that it can maintain more than a 1.2 coverage ratio over the long term.

Adding further support to the company's ability to sustain its high-yielding distribution to investors is the fact that it generates very stable cash flow because long-term, fee-based contracts underpin the bulk of assets. In addition, the company has a strong balance sheet backed by investment-grade credit metrics that are near the top of its peer group. These metrics place it among the elite MLPs.

Ample upside ahead

The company's strong financial profile gives it the flexibility to invest in expanding its portfolio. MPLX currently has $2.2 billion of organic growth projects under construction, which it can fully fund with excess cash flow and incremental debt. Those projects position the company to grow cash flow at a healthy enough pace to support a 10% distribution increase this year, with it aiming to raise the payout each quarter.

In addition to that visible near-term growth, MPLX has ample expansion opportunities on the horizon. The company holds a leading position in the Marcellus and Utica Shale region in the Northeast, along with a strong footprint in the STACK Shale play in Oklahoma. And it has a growing presence in the Permian Basin. Because of that, it should be able to continue capturing organic growth projects to expand its capabilities in those regions.

On top of that, another growth driver recently emerged when its parent, refining giant Marathon Petroleum (NYSE: MPC), agreed to acquire fellow refiner Andeavor (NYSE: ANDV). That's worth noting because Andeavor owns several midstream assets and a stake in MLP Andeavor Logistics (NYSE: ANDX). It's highly likely that Marathon Petroleum will eventually drop down the midstream assets it acquires in the deal to MPLX, as well as merge Andeavor Logistics into its MLP.

Not only would those transactions move the needle for MPLX by adding more cash flowing assets to its portfolio, but they'd enhance its growth prospects. That's because Andeavor recently secured some needle-moving growth projects, while Andeavor Logistics has a large backlog of expansions underway and in development, including upward of $850 million in the fast-growing Permian Basin. That large supply of acquisition opportunities and organic growth projects could fuel high-rate distribution growth at MPLX for years to come.

An excellent income stock for an even better price

In the near term, MPLX offers income seekers a well-supported 7.3%-yielding payout that should increase steadily over the course of this year. On top of that, it has multiple avenues for future growth as it expands its existing portfolio and benefits from its relationship with Marathon Petroleum. With all that income and growth now coming at a lower price, MPLX is a compelling income stock to consider buying this month.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.