These high-yielding dividend stocks are turning to acquisitions to supercharge their growth engines

A flurry of mergers and acquisitions (M&A) activity has swept across the oilfield over the past year. Huge oil sea ExxonMobil kicked things off with its $60 billion deal for Pioneer Natural Resources. Several rivals followed his lead, incl Chevronwho are trying to buy Hess in a nearly $60 billion deal.

The wave of mergers and acquisitions of the oil industry has spread in pipeline sector. Several midstream companies have made acquisitions, while rumors suggest others are on the lookout. These offers will give pipeline companies more fuel to increase its cash flow and high yield dividends.

Let’s make a deal

Energy transfer (ET 0.56%) prides itself on being a consolidator in the midstream sector. The master limited partnership (MLP) made several purchases over the years. However, it has picked up the pace in the past year. The company made two deals last year (buying Lotus Midstream for $1.5 billion last May and closing its $7.1 billion merger with fellow MLP Crestwood Equity Partners in November).

The MLP continued to close deals this year, buying WTG Midstream for $3.1 billion in July. MeanwhileAffiliate MLP Sunoco LP acquired NuStar Energy for $7.3 billion. It later formed a strategic joint venture to combine its crude oil and product Permian Basin water gathering assets (which it acquired under the NuStar contract) with Energy Transfer’s ActiveE in the region.

These transactions have two common themes. I am strategically strong matches that enhance Energy Transfer’s existing assets. The transactions also contributed to cash flow per share and had a neutral impact on its balance sheet. Because of this, they are enhancing the MLP’s plan to increase its 8% yielding distribution by 3%-5% annually.

One ok (Okay -0.80%) was just as active. The pipeline company completed its transformational $18.8 billion acquisition of MLP Magellan Midstream Partners last year. That deal improved its scale and diversification, while being extremely attractive (free cash flow per share will grow by more than 20% on average through 2027). Oneok followed through on that agreement $5.9 billion in purchases last month.

Buy Medallion Midstream and a 43% interest. EnLink Midstream from the same private equity firm. Following the closing of this transaction, Oneok plans to purchase the remaining interest in EnLink from outside shareholders. Those deals will be immediately beneficial to its cash flow and return-on-capital program, which includes raising its 4-plus-percent-yielding dividend by 3%-4% per year.

Enterprise product partners (EPD -0.10%) was also enough active this year. He recently agreed buys Pinon Midstream in a $950 million deal. In addition, it bought $400 million in joint venture partner interests from fellow MLPs Western Midstream Partners (WES -1.05%). These offerings will give Enterprise Products partners more fuel to grow their distribution with over 7% yield. something he did for 26 consecutive years.

More offers could come down PIPE

The consolidation wave of the midstream sector shows no signs of stopping. According to a Bloomberg report, the natural gas pipeline giant Williams had some interest in buying a midstream company Stretcher Resources. There are some disagreement about the extent of the interest. Targa said he rejected the offer because it undervalued the company. Meanwhile, Reuters reported that Williams never made an offer.

Anyway, rumors suggest midstream companies are still looking for deals. Williams and Targa Resources have both been targets in the past. Energy Transfer had agreed to buy Williams in 2015, but that deal fell through, prompting Enterprise Products Partners to approach Williams with a deal the following year. Before that, Energy Transfer was interested in buying Targa.

Meanwhile, Western Midstream Partners’ largest investor, the oil giant Occidental Petroleumexplored selling its stake in the MLP earlier this year. Occidental is selling non-core assets to repay debt from its $12 billion acquisition of CrownRock. While he did it recently reduced its interest in Western Midstream to raise some cash for debt reductionit could eventually sell its entire remaining stake to another midstream company or private equity fund. The buyer could then offer to acquire the rest of the company from outside shareholders, similar to Oneok’s planned two-stage acquisition of EnLink.

In addition to deals between publicly traded midstream players, private equity firms have taken advantage of the M&A boom by selling their midstream stakes. Lotus, WTG, Pinon and Medallion were all smaller private equity owned midstream companies. Other financial investors will likely look to exit their positions while the trade window is still wide open.

Adding more fuel to pay dividends

Pipeline companies prefer to grow organically by expanding midstream infrastructure operations through expansion projects. However, many are turning to M&A to improve their growth profiles. These increased trades increase their cash flow, which will increase their ability to increase their high-yielding dividends in the future. Because of this, income-focused investors could earn higher returns from the sector in the future as companies close additional additional deals. This makes it a great place to collect a growing stream of passive income these days.