ET - MPLX: Upside Getting Squeezed But Still A Strong Income Play Yielding 8.32%

2024-03-27 09:00:00 ET

Summary

• MLP sector has had a strong year, but room for further growth is limited.
• I am no longer bullish on MPLX due to its valuation reaching a temporary top.
• Risks to investment thesis include opportunity cost, potential retracement, and regulation risks.

I have been bullish on the MLP sector for some time, even when the calls for displacing traditional energy sources were more abundant than they are today. The sector has had a phenomenal year as the Alerian MLP ETF ( AMLP ) has appreciated by 25.93% over the past year while paying $3.45 in dividend income , which is a 9.26% yield on the cost of shares when they traded for $37.26 this time last year. I have been indicating through several articles on Seeking Alpha that the MLP sector looked undervalued, and I was specifically interested in Energy Transfer ( ET ), Enterprise Products Partners ( EPD ), and MPLX LP ( MPLX ). These companies have provided a great combination of appreciation and income over the past year, but after the rally, the room for some MLPs to run is getting a lot shorter. While I am still a fan of MPLX, it's no longer a strong buy in my opinion. After exceeding pre-pandemic levels, and appreciating by 19.62% in the past year, the valuation isn't as enticing as it once was. I think MLPX is a phenomenal company that will continue to be a strong investment to generate income, but I feel the valuation is reaching a top for the time being. While in my last article, I rated MPLX a strong buy, I am bringing my rating down to hold as I think much of the upside is now priced in....

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