This High-Yield Stock Looks Enticing Right Now

MPLX (NYSE: MPLX) has undergone a significant transformation over the past year and a half. The master limited partnership (MLP) completed several transactions with its oil refining parent Marathon Petroleum (NYSE: MPC), which diversified its midstream portfolio and eliminated costly management fees. Those moves position MPLX to continue growing its rock-solid 6.8%-yielding payout at a healthy clip for the next several years, making it an excellent option for income-seeking investors to consider buying.

Top level financial metrics

During the first quarter of 2018, MPLX generated enough cash to cover its high-yield distribution by a comfortable 1.29 times, well above the level of most MLPs. Meanwhile, the company's leverage ratio was 3.8 times debt to EBITDA, which is a solid level for an MLP and well within investment-grade territory.

Because of those strong metrics, MPLX has the financial flexibility to invest $2.2 billion into organic expansion projects this year without needing to issue any new equity. That self-funded growth should increase cash flow enough to support a 10% distribution increase for 2018. That's an exceptional growth rate considering MPLX's current yield as it is a faster pace than most peers with similar scale and financial profiles.

Ample options to continue growing in the coming years

MPLX expects to finish the bulk of its current slate of expansion projects by the end of this year. However, the company is already working on securing the next phase of its growth. For example, MPLX and its 50% joint venture (JV) partner Antero Midstream (NYSE: AM) recently announced the location of their new Smithburg processing complex. That project is part of the estimated $1.6 billion that Antero Midstream forecasts that the partners will invest into this JV over the next five years. Meanwhile, MPLX's management team made it clear on their most recent conference call that they're actively pursuing expansion projects in the fast-growing Permian Basin as well as in other regions.

In addition to seeking new organic growth opportunities, MPLX will likely continue making acquisitions thanks to its relationship with Marathon Petroleum. Driving that view is the fact that Marathon recently agreed to acquire fellow refiner Andeavor (NYSE: ANDV), which owns a large portfolio of midstream assets as well as a significant stake in MLP Andeavor Logistics (NYSE: ANDX). That MLP had anticipated completing $400 million to $500 million of annual drop-down transactions with Andeavor through 2020 along with investing $500 million to $600 million per year on organic growth projects. However, with Marathon buying Andeavor, it will likely merge Andeavor Logistics into MPLX. That deal would bolster MPLX's portfolio and enhance its growth prospects via additional asset drop-downs as well as by adding several compelling expansion projects, including a stake in the recently announced Grey Oak pipeline and an associated terminal project.

Great income with greater upside

In the near term, MPLX offers income seekers the opportunity to lock in a rock-solid yield of almost 7% that it expects to increase 10% this year. While the company hasn't yet offered an outlook on distribution growth beyond 2018, it should be able to continue expanding the payout at a healthy pace thanks to its ability to continue securing organic growth projects and from Marathon's acquisition of Andeavor. Meanwhile, with units currently trading for about 11.5 times cash flow -- slightly less than the peer-group average of 12 times -- investors have the opportunity to buy MPLX's income stream and upside potential for an enticing price.

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Matthew DiLallo has the following options: short June 2018 $25 puts on Antero Midstream Partners. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.