3 Midstream Stocks Quietly Compounding Dividends Every Year

Midstream stocks, or shares in companies that own energy assets like oil and gas pipelines and storage facilities, are an unglamorous yet highly profitable niche within the energy sector. Operating as a "toll road" type business, generating fixed fees largely unaffected by volatile fossil fuel prices, these companies can quietly mint profit during boom times and bust times in the oil sector.

This can create fantastic compounding potential for investors more concerned with capital growth. This holds especially true for owners of the following three pipeline stocks: Enbridge (NYSE: ENB), Enterprise Products Partners (NYSE: EPD), and MPLX (NYSE: MPLX).

1. Enbridge: The slow and steady compounder

Enbridge is a diversified energy and utility infrastructure company. In addition to owning over 18,000 miles of pipeline across the U.S. and Canada, Enbridge operates a gas utilities company serving over 7 million customers. The company has also invested extensively in renewable energy infrastructure.

Diversification notwithstanding, it's Enbridge's midstream assets that make it a steady cash generator, enabling it to consistently raise its dividend over time. While the company's dividend growth streak currently stands at just three years, its quarterly payouts have grown by an average of 7.3% annually over the past decade.

With a forward yield of 5.1%, investors who choose to reinvest their dividends can grow an initial investment in this stock into a fairly large portfolio holding. Keep in mind that Enbridge's C-corp status has different tax implications than those of most midstream stocks, which are typically master limited partnerships (MLPs).

2. Enterprise Products Partners: Dividend growth royalty

Among dividend growth track records, few pipeline stocks match up to Enterprise Products Partners. For nearly 30 years in a row, this midstream energy MLP has raised its quarterly payouts, known as distributions.

For investors who held onto this MLP for decades, this has likely led to tremendous compounding over time, assuming they rolled over distributions into new shares. Enterprise Product Partners, by virtue of its MLP status, continues to pay out the lion's share of its pretax earnings as distributions.

As a result, this stock has a fairly high forward yield of nearly 6%. Payouts have increased by an average of 4% each year for the past five years. Per EPD's latest investor presentation, the MLP continues to drive for further per-unit cash flow growth through both organic growth and share repurchases.

3. MPLX: A high-yielder growing at an impressive clip

At first glance, you may look at MPLX's relatively high forward yield of 7.3% as a warning sign. Typically, if a stock has a higher-than-average yield, it's due to potential risks that could eliminate and/or outweigh such a high payout down the road.

However, a closer look suggests that MPLX may be many things, but it's far from a value trap. For one, this MLP, affiliated with Marathon Petroleum, has 10 years of consecutive payout growth. Over the past decade, distributions have grown by an average of 11.5% annually, including 12.5% distribution growth over the past year.

Looking ahead, MPLX continues to expand its asset base, bringing additional capacity online. With this, management anticipates that distribution growth of 12.5% could continue over the next two years.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.