These 2 Ultra-High-Yield Dividend Stocks Are Severely Underrated

The energy sector is a great space for income-focused investors. Many companies in the industry offer above-average dividend yields. However, investors tend to focus on the most popular names. Meanwhile, some high-quality income producers aren’t getting any attention. 

These 2 Ultra-High-Yield Dividend Stocks Are Severely Underrated

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These 2 Ultra-High-Yield Dividend Stocks Are Severely Underrated

Two companies with high-yielding dividends that don’t get anywhere near the credit that they deserve from investors are Delek Logistics Partners (NYSE: DKL) and MPLX (NYSE: MPLX). Here’s a closer look at these underrated energy stocks.


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Increasing the big-time payout like clockwork

Delek Logistics Partners has quietly been a phenomenal income producer. The master limited partnership (MLP) pays a hefty distribution — its yield at the current share price clocks in at 8.4%. Meanwhile, the MLP has boosted its distribution to investors for 40 straight quarters. That’s an impressive streak considering that many of its peers have slashed their distributions in recent years due to all the volatility in the energy sector. Overall, in the years since the MLP was formed in late 2012, it has increased its payout by 172%. 

Several factors have helped fuel that growth. Delek Logistics has steadily acquired midstream assets from its parent, refiner Delek US Holdings (NYSE: DK), through a series of drop-down transactions. It has also acquired assets from third parties. The company most recently acquired 3Bear for $624.7 million, growing its position in the Permian Basin. It has also completed some small organic expansion projects. 

These deals have helped Delek Logistics Partners grow its cash flow, giving it the fuel to increase its distributions. The MLP bumped up its payout by 5% last year, and expects to grow it at the same rate in 2023. 

Delek Logistics has the financial flexibility to continue growing its operations and distributions. The MLP produced enough distributable cash flow in the third quarter to cover its big-time distribution by 1.62 times. That enabled it to retain enough cash to maintain a strong financial profile. It ended the period with a solid leverage ratio of 4.35. That will allow it to continue making acquisitions from Delek US Holdings (which still owns a few logistics assets it could drop down to its MLP) and from third-party sellers.

A big-time yield and growth rate

MPLX has also been an exceptional income generator. While it hasn’t increased its payout every single quarter like Delek Logistics has, it has boosted it every year since the MLP was formed in 2012. The company has increased the distribution by an impressive 195% in total, including a 10% raise last year. 

It has also used drop-down transactions from its parent, refining giant Marathon Petroleum (NYSE: MPC), and third-party acquisitions to help fuel its growth. In addition, it has invested heavily in organic expansion projects. The company expects to invest $800 million on organic growth projects this year, including expanding natural gas and crude oil pipelines and building additional gathering-and-processing facilities. Those projects should come online through the first half of next year, providing MPLX with visible cash flow growth. 

MPLX has ample financial flexibility to fund its growth-related investments and continue increasing its distribution. The MLP generated enough cash to cover its distribution by a comfy 1.6 times last year, enabling it to retain money to finance organic expansions while maintaining a strong balance sheet. It ended 2022 with a low leverage ratio of 3.5, well below its 4.0 times target. That gave it the additional financial flexibility to repurchase nearly $500 million of its units last year. MPLX’s strong balance sheet also allows it to make strategic acquisitions as opportunities arise. 

High-quality income options

Investors have severely underrated Delek Logistics Partners and MPLX. Both MLPs pay big-time distributions that they have steadily increased over the past decade. With more growth ahead, they’re great options for those seeking lucrative and growing passive income streams.


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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.

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