High-Yield Energy Stocks on the Rise: Why ConocoPhillips and MPLX are Top Picks for Dividend Growth

ConocoPhillips: Acquisition-Driven Dividend Growth

ConocoPhillips recently announced a substantial 34% increase in its dividend, raising its yield to nearly 3%—more than double the S&P 500’s average dividend yield of around 1.5%. This increase follows a 14% rise in 2023 and an 11% boost in 2022, signaling a steady commitment to high dividend growth.

Marathon Oil Acquisition Fuels ConocoPhillips’ Growth

A significant factor driving ConocoPhillips’ dividend growth is its $22.5 billion acquisition of Marathon Oil (MRO), an investment that will immediately enhance the company’s earnings, cash flow, and per-share capital returns. This deal also expands ConocoPhillips’ high-quality, low-cost supply portfolio and is expected to deliver over $500 million in cost synergies upon completion.

With plans to keep buying back its shares, ConocoPhillips has already reduced outstanding shares by 14% since acquiring Concho Resources in 2021. Moving forward, ConocoPhillips aims to repurchase $20 billion worth of stock over the next few years, enough to retire the stock issued for the Marathon acquisition. This combination of increased cash flow and share reduction positions ConocoPhillips to sustain its high dividend growth.

MPLX: High-Yield Payments with Growth Potential

MPLX, a master limited partnership (MLP), is currently delivering an impressive 9% yield. High yields like this often signal limited growth, yet MPLX has consistently defied expectations by boosting its payout. Most recently, the company raised its distribution by 12.5%, building on annual 10% increases over the past two years.

Expansion and Financial Strength Drive MPLX Growth

MPLX has grown its distributable cash flow at a 7.7% compound annual growth rate since 2020, fueled by expansion projects and strategic acquisitions. Recent investments include additional ownership interests in joint ventures and the acquisition of a dry gas gathering system for $625 million. MPLX also completed its Harmon Creek II processing plant and formed a joint venture to combine the Whistler Pipeline with the Rio Bravo Pipeline project, further expanding its capacity.

MPLX’s financial profile is notably conservative, with a comfortable 1.6x distribution coverage ratio and a 3.4 leverage ratio, below its target of 4.0. These metrics give MPLX ample room to maintain and grow its high-yield distribution, even as it continues to invest in new projects.

Future Expansion and Strong Financials Support Continued Growth

Looking ahead, MPLX is well-positioned for further distribution growth. The company recently increased its stake in the BANGL natural gas liquids pipeline, which is expected to expand service in early 2025. Additionally, MPLX and its Whistler Pipeline partners have approved the construction of the Blackcomb Pipeline, expected to provide another boost to its cash flow.