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The Smartest High-Yield Midstream Stocks to Buy With $2,000 Right Now | The Motley Fool

The Smartest High-Yield Midstream Stocks to Buy With $500 Right Now

In the ever-evolving landscape of energy investing, midstream stocks stand out as a beacon of stability and income generation. These companies operate in the "middle" of the energy value chain, focusing on the transportation, storage, and processing of oil, natural gas, and other hydrocarbons. Unlike upstream producers, which are vulnerable to volatile commodity prices, or downstream refiners tied to end-user demand, midstream players often benefit from fee-based business models. This means they earn steady revenue through long-term contracts, regardless of fluctuating energy prices. For income-focused investors, particularly those with modest sums like $500 to deploy, high-yield midstream stocks offer an attractive combination of generous dividends, relative safety, and potential for capital appreciation.

The appeal of midstream investments has grown in recent years amid a global push toward energy security and the transition to cleaner fuels. With geopolitical tensions disrupting supply chains and a resurgence in U.S. energy production, midstream infrastructure is more critical than ever. Many of these companies are structured as master limited partnerships (MLPs), which pass through most of their income to unitholders, resulting in yields that often exceed those of traditional stocks or bonds. However, not all midstream stocks are created equal. Smart investors should prioritize those with strong balance sheets, diversified assets, and a track record of distribution growth. In this analysis, we'll explore some of the smartest high-yield midstream stocks that could be bought with just $500, emphasizing their fundamentals, growth drivers, and why they represent intelligent choices in today's market.

One standout option is Enterprise Products Partners L.P. (NYSE: EPD), a titan in the midstream space with a vast network of pipelines, storage facilities, and export terminals. EPD boasts one of the most impressive dividend histories in the sector, having increased its distribution for 25 consecutive years. At current prices, it offers a forward yield of around 7%, making it a compelling pick for yield hunters. What sets EPD apart is its fee-based revenue model, where over 85% of its gross operating margin comes from stable, long-term contracts. This insulates the company from the wild swings in oil and gas prices that plague other energy segments.

EPD's asset base is diversified across natural gas liquids (NGLs), crude oil, refined products, and petrochemicals, positioning it well for both domestic demand and international exports. For instance, the company's export terminals on the Gulf Coast have seen booming volumes as U.S. liquefied natural gas (LNG) shipments surge to Europe and Asia. Recent expansions, such as the addition of new fractionation capacity and pipeline extensions, underscore EPD's commitment to growth. Financially, EPD maintains a conservative leverage ratio, with debt-to-EBITDA around 3.5 times, well below industry averages. This financial prudence allowed it to weather the COVID-19 downturn without cutting distributions, unlike some peers.

Looking ahead, EPD is poised to benefit from the energy transition. While fossil fuels remain dominant, the company is investing in hydrogen infrastructure and carbon capture projects, aligning with sustainability trends. For an investor with $500, purchasing shares of EPD could provide immediate income and long-term upside. At a share price hovering around $29, $500 could buy about 17 units, generating roughly $35 in annual distributions based on the current quarterly payout of $0.515 per unit. Of course, investors should consider the tax implications of MLPs, as distributions often include return of capital, but the high yield more than compensates for the paperwork.

Another intelligent choice is Energy Transfer LP (NYSE: ET), a diversified midstream giant with operations spanning pipelines, processing plants, and storage across key U.S. basins like the Permian and Marcellus. ET offers a juicy yield of approximately 8%, appealing to those seeking maximum income from a small investment. The company's scale is unmatched, with over 120,000 miles of pipelines transporting natural gas, crude oil, and NGLs. This extensive footprint provides resilience against regional disruptions and enables ET to capture opportunities in high-growth areas.

ET has undergone significant transformations in recent years, including the acquisition of Enable Midstream Partners, which bolstered its natural gas gathering and processing capabilities. This move not only expanded its asset base but also enhanced cash flow stability. In its latest earnings, ET reported robust adjusted EBITDA growth, driven by higher volumes and strategic investments. The company has also focused on deleveraging, reducing its debt load post-acquisition, which has improved its credit profile and supported distribution increases.

What makes ET a smart buy now is its exposure to the LNG boom. With facilities like the Lake Charles LNG project in development, ET is well-positioned to capitalize on rising global demand for U.S. natural gas exports. Additionally, the company's Sunoco LP subsidiary adds a retail fuel distribution angle, diversifying revenue streams beyond pure midstream activities. Risks include regulatory hurdles for new projects and potential shifts in energy policy, but ET's management has demonstrated adept navigation of these challenges.

For a $500 investment, at a unit price of about $16, an investor could acquire around 31 units, yielding roughly $40 annually at the current quarterly distribution of $0.3175 per unit. This makes ET an excellent entry point for building a high-yield portfolio incrementally.

MPLX LP (NYSE: MPLX), a subsidiary of Marathon Petroleum, rounds out our list with a yield north of 8%. MPLX focuses on logistics and storage, with a strong emphasis on refined products and crude oil transportation. Its assets include pipelines connected to major refineries and marine terminals, ensuring steady throughput volumes. The partnership's affiliation with Marathon provides a built-in customer base, reducing counterparty risk.

MPLX has been aggressive in capital allocation, returning excess cash to unitholders through distribution hikes and unit repurchases. Over the past year, it has increased its distribution by 10%, signaling confidence in future cash flows. The company's gathering and processing segment in the Marcellus shale has been a growth engine, benefiting from abundant natural gas production.

Strategically, MPLX is investing in renewable diesel and sustainable aviation fuel infrastructure, adapting to the low-carbon future. This forward-thinking approach mitigates long-term risks associated with fossil fuel dependency. Financially, MPLX sports a healthy coverage ratio for its distributions, often exceeding 1.3 times, providing a cushion against downturns.

With units priced around $42, $500 could secure about 12 units, delivering around $40 in yearly income based on the quarterly payout of $0.85 per unit. MPLX's stability and growth potential make it a wise addition to any income portfolio.

Beyond these individual picks, it's worth noting broader trends favoring midstream stocks. The sector is undervalued relative to historical multiples, trading at enterprise value-to-EBITDA ratios in the 8-10x range, compared to 12x or more in the past. This discount stems from past overbuild concerns and the energy transition narrative, but fundamentals remain strong. U.S. energy independence, coupled with infrastructure needs, supports sustained demand for midstream services. Moreover, with interest rates potentially stabilizing, high-yield assets like these become more attractive versus fixed-income alternatives.

Investing in midstream also offers inflation protection, as many contracts include escalators tied to producer price indices. For risk management, diversification across a few names like EPD, ET, and MPLX can mitigate company-specific issues. While commodity price volatility persists, the fee-based nature of these businesses provides a moat.

In conclusion, for investors with $500 to invest, these high-yield midstream stocks—Enterprise Products Partners, Energy Transfer, and MPLX—represent some of the smartest options available. They combine robust yields, resilient business models, and exposure to enduring energy trends. By focusing on companies with proven track records and strategic visions, you can build a foundation for long-term income and growth. As always, conduct due diligence and consider your risk tolerance, but in a market hungry for yield, midstream stands tall. (Word count: 1,128)

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