Got $1,000? These High Yield Dividend Stocks Can Turn It Into Almost $80 a Year in Passive Income.

Higher interest rates are a dream scenario for passive investors. Even low-risk, fixed-income investments like government bonds and bank deposits offer high returns these daysFor this reason, equity investments, which are inherently riskier, must offer even higher returns to attract income-seeking investors.

For example, several high-quality products focused on performance limited liability partnerships (MLP) They currently pay around 8%. So a $1,000 investment can generate around $80 in passive income per year. Energy transfer (NYSE:ET) AND MPLX (NYSE: MPLX) are two great options for investors looking for income.

Fully fueled growth plan

Energy Transfer Distribution is currently yielding around 8% profit. This is several times more than the average share ( S&P500 dividend yield is 1.3%. Higher-yielding dividend stocks are often more likely to be cut, but that’s unlikely for Energy Transfer. Instead, the pipeline company plans to increase its payout by 3% to 5% annually.

Several factors support this view. For starters, Energy Transfer generates plenty of stable cash flow. About 90% of its profits come from fee-based arrangements, such as long-term fixed-rate contracts or government-regulated rate structures.

In the meantime, he distributes A bit more than half of its stable cash flow to investors each year. This allows it to keep all the cash it needs to fund organic expansion projects with a headroom. It uses the remaining excess free cash flow to strengthen its balance sheet. As a result, it expects its leverage ratio be near the lower end of the target range of 4 to 4.5 times.

The company’s strong balance sheet gives it the financial flexibility to make acquisitions when opportunities arise. Last year, it bought Lotus Midstream and Crestwood Equity Partners for $1.5 billion and $7.1 billion, respectively.

In the meantime, it recently completed the purchase of WTG Midstream for nearly $3.3 billion. This highly accretive transaction alone will support its distribution growth plans for several years. Add in growth from organic expansion projects, and Energy Transfer has plenty of resources to boost its payouts in the coming years.

Rapid growth in income

The MLPX distribution yield is currently just under 8%. The MLP has been rapidly increasing its payouts in recent years. Last year was the second year simple year, providing its investors with a 10% raise.

The company’s high payout is in progress very solid foundation. Similar to Energy Transfer, it generates Very stable cash flow supported by long-term contracts and government-regulated rate structures. Because of this, it generates plenty of cash to cover payouts. Its distribution coverage ratio has averaged 1.6 times over the past few quarters.

The company is using its excess free cash flow after dividends to fund new expansion projects and maintain a strong balance sheet. It is conducting several pipeline expansions and building several more natural gas processing plants.

MLP has also recently joined new a joint venture combining existing assets with a new pipeline project, providing another growth driver.

MPLX also has very strong balance sheet. The leverage ratio was 3.2 times at the end of the fourth quarter, well below the 4.0 times that a stable business could sustain.

It also had more than $385 million in cash on its balance sheet. That’s after spending $625 million in March to acquire additional ownership interests in some existing joint ventures and a gas gathering system. It has the flexibility to pursue acquisitions as opportunities arise.

Given its conservative financial profile and growth drivers, MPLX is poised to continue to grow its distribution at a healthy pace in the coming years.

Increase your passive income with these MLPs

Energy Transfer and MPLX offer high-yielding passive income streams supported by stable cash flows and financially strong profile. Both expect payouts to continue to grow in the future. That makes them ideal for those looking for above-average income streams and who are comfortable with the added tax complexities of MLP investing (they send Schedule K-1, federal tax form instead of Form 1099-DIV each year).

Is it worth investing $1000 in Energy Transfer now?

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Matt DiLallo has a position in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.