MPLX - MPLX: A 10% Yielding Rich Retirement Dream Machine

2023-11-16 07:15:00 ET

Summary

• MPLX is one of the best 9.5% yielding stocks in the world, a true rich retirement dream machine.
• The business is based on long-term contracted cash flows with investment-grade energy companies.
• MPLX plans to diversify into green energy and be around for decades, which is why bond investors are betting millions will be thriving in 2058.
• MPLX stock is 17% undervalued and offers twice the market's return potential over the next two years, Buffett-like 18% annual return potential.
• Over the long term, 9.5% yield + 4% growth means a Nasdaq-beating 13.5% return potential from a highly dependable MLP (K1 tax form).

How would you like a safe 10% yield that grows at twice the inflation rate over time?

How about the ability to earn Buffett-like returns in the next few years and smoke the stock market?

Does that sound too good to be true? Like a rich retirement dream machine? Or even the mad ramblings of a lunatic?

Let me show you why MPLX (MPLX) offers all of these things and more and might be just what your retirement is looking for.

Hopefully, you find these kinds of updates to be more efficient, fun, and downright enjoyable.

Video - MPLX: A 10% Yielding Rich Retirement Dream Machine

Fundamental Summary:

• Yield: 9.5% (6X S&P 500 and 3X SCHD or VYM)
• Dividend safety: 77% very safe (2.4% dividend cut risk)
• Overall quality: 77% medium-risk SWAN MLP (uses K1 tax form)
• Credit rating: BBB stable (7.5% 30-year bankruptcy risk)
• Long-term growth consensus: 4.0%
• Long-term total return potential: 13.5% vs 10.2% S&P 500
• Price: $35.70
• Fair Value: $43.22
• Discount to fair value: 17% discount (potential good) vs 10% overvaluation on S&P
• 10-year valuation boost: 1.9% annually
• 10-year consensus total return potential: 9.5% yield + 4.0% growth + 1.9% valuation boost = 15.4% vs 9% S&P
• 10-year consensus total return potential: = 319 % vs 134% S&P 500

Consensus Total Return Potential

• If and only if each company grows as analysts expect
• And returns to historical market-determined fair value
• This is what you will make.

2025 Consensus MPLX Total Return Potential

2025 Consensus S&P Return Potential

Risk Profile: Why MPLX Isn't Right For Everyone

There are no risk-free companies, and no company is right for everyone. You have to be comfortable with the fundamental risk profile.

• Non-U.S. investors might want to avoid MLPs entirely due to the very high tax withholdings.
• New tax rules (according to Schwab) mean that many investors might not be able to recoup those withholdings (which are increasing to potentially 55% in some cases).

Risk Profile Summary

• Regulatory/political risk (in terms of energy production policy and project completion)
• Green energy transition risk: MPLX is not an industry leader in green energy investments (that would be Enbridge ( ENB ))
• M&A risk: $3.4 billion in write-downs from overpaying for Andeavor Logistics
• Labor retention risk (tightest job market in over 54 years)
• Cybersecurity risk: Hackers and ransomware (such as Colonial Pipeline)
• Supply chain risk: Disruptions during the last year
• Governance Risk: MPC owns 64% of MPLX and could one day decide to buy them

In March 2020, MPC completed a strategic review of MPLX and all its midstream assets. And management reiterated that MPC has no plans to buy out MPLX.

The outcome of the 2020 strategic review was disappointing, as it essentially maintained the status quo vs. pursuing meaningful changes, highlighted by the focus on distribution. However, dealing with the large near-term impacts of the collapse in both oil demand and supply will consume the management team's time in the near term. When market conditions improve as we expect in 2022, we may still see a C-corporation conversion or larger asset sales designed to rid the portfolio of weaker Andeavor Logistics assets." - Morningstar.

Morningstar still thinks MPC will eventually buy MPLX, which could be a very bad thing for income investors.

• A taxable event for long-term MPC investors
• Short-term investors might potentially be bought out at a lower price than they paid
• Even with distributions, they might break even if MPC buys them out
• A steep effective payout cut.

How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.

Long-Term Risk Management Analysis: How Large Institutions Measure Total Risk Management

We use S&P Global's global long-term risk-management ratings for our risk rating.

• S&P has spent over 20 years perfecting their risk model
• Which is based on over 30 major risk categories, over 130 subcategories, and 1,000 individual metrics
• 50% of metrics are industry-specific
• This risk rating has been included in every credit rating for decades.

The risk rating is based on the global percentile of a company's risk management compared to 8,000 S&P-rated companies covering 90% of the world's market cap.

MPLX Scores 47th Percentile On Global Long-Term Risk Management

S&P's risk management scores factor in things like:

• supply chain management
• crisis management
• cyber-security
• privacy protection
• efficiency
• R&D efficiency
• innovation management
• labor relations
• talent retention
• worker training/skills improvement
• customer relationship management
• climate strategy adaptation
• corporate governance
• brand management.

MPLX's Long-Term Risk Management Is The 339th Best In The Master List (32nd Percentile In The Master List)

(Source: DK Research Terminal.)

MPLX's risk-management consensus is in the bottom 32% of the world's highest quality companies and similar to that of such other blue-chips as:

• Nordson ( NDSN ): Ultra SWAN dividend king
• Honeywell ( HON ): Ultra SWAN
• Brown-Forman ( BF.B ) Ultra SWAN dividend aristocrat
• NextEra Energy ( NEE ): Super SWAN dividend aristocrat
• Exxon ( XOM ): Blue-chip dividend aristocrat
• Chevron ( CVX ): Blue-chip dividend aristocrat

For further details see: