3 High-Yield Stocks You Won't Want to Overlook

While most investors are probably somewhat familiar with Devon Energy (NYSE: DVN), Marathon Petroleum (NYSE: MPC), and Phillips 66 (NYSE: PSX), income-seekers probably don't give them a second thought because they currently have rather unappealing dividend yields. Because of that, they might have missed the fact that all three of these energy giants formed master limited partnerships that not only own and operate their logistics assets but offer a much higher yielding opportunity. Since compelling income streams can be harder to find these days, this trio is worth a closer look.

Closing in on double digits

In early 2014 Devon Energy combined nearly all its U.S. midstream assets with Crosstex Energy to form EnLink Midstream Partners (NYSE: ENLK) and its general partner EnLink Midstream (NYSE: ENLC). In doing so, Devon created a large-scale midstream company that would help drive its growth. The company also created a high-yield entity for investors in the process. In fact, EnLink Midstream Partners currently yields a very generous 9.6%, which is substantially more income than investors could earn in Devon considering its paltry 0.7% yield these days.

That said, one reason EnLink Midstream Partners' payout is well above average is that it currently distributes nearly all its income to investors, leading to a razor-thin coverage ratio that was just 1.02 times last quarter. However, the company has an investment grade balance sheet and a conservative 3.99 times leverage ratio that provides some additional support. Meanwhile, the company has several high-return growth projects underway, that should push cash flow higher and give it some more breathing room. While certainly a higher-risk payout, income seekers still won't want to overlook the greater potential reward that EnLink offers.

A high growth high yield

Marathon Petroleum formed its MLP, MPLX (NYSE: MPLX), in 2012 to monetize its midstream assets. However, in addition to growing its partnership with drop-down transactions, Marathon also used it to make acquisitions, including buying MarkWest Energy Partners in late 2015 to diversify into natural gas-related infrastructure. Those deals have significantly increased MPLX's distributable cash flow, enabling it to steadily increase its payout to investors, which currently yields 6.4%, and is nearly twice what Marathon pays these days.

While MPLX has expanded at a rapid rate in recent years, it still has plenty of growth left in the tank. The company is in the process of completing the remaining asset drop downs from Marathon, which it expects to finish early next year and should add $1 billion of annualized earnings. Meanwhile, the company has an extensive pipeline of organic growth projects under construction, which will combine to drive 12% to 15% distribution growth this year and a double-digit increase in 2018. That payout is well-supported since MPLX's coverage ratio is a healthy 1.25 times, and it has an investment grade balance sheet backed by a 3.8 times leverage ratio. Given that fast-growing high-yields that are on sound financial footing are hard to come by these days, income-focused investors won't want to overlook this energy stock.

Eye-popping growth that's as safe as it comes

Phillips 66 formed its MLP, Phillips 66 Partners (NYSE: PSXP), in 2013 for the same reason Marathon created MPLX, which was to monetize its midstream assets. Phillips 66 estimated that it could steadily drop-down facilities to its MLP over the subsequent five years, which would fuel 30% compound annual distribution growth for investors in Phillips 66 Partners. It has kept that promise so far, delivering a 33% compound annual growth rate to date. As a result, the MLP currently yields a healthy 5% versus the 3% dividend paid by Phillips 66.

One thing that's worth noting about Phillips 66 Partners' payout is that it's on the strongest foundation of this trio since its coverage ratio has averaged more than 1.3 times so far this year. Further, it has the lowest leverage ratio in the group at just 3.5 times. Because of that, there's a minimal risk that Phillips 66 Partners will stumble as it completes its ambitious 5-year plan. Meanwhile, it has recently followed in MPLX's footsteps by securing third-party growth, which should enable the company to continue increasing its payout after next year, though the rate probably won't be quite as rapid.

Three great options for income-seekers

While their parent companies aren't great income options, EnLink Midstream, Phillips 66 Partners, and MPLX offer investors the opportunity to add a compelling dividend stream to their portfolio. While the payout rates, risk profiles, and growth potentials vary, each appears poised to deliver solid total returns for investors over the next few years, which is why income-seekers won't want to continue overlooking this trio.

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Matthew DiLallo owns shares of Phillips 66. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.