As Oneok acquires Magellan, here are the best MLP stocks to buy

Oneok announced that it will acquire Magellan Partners.

This is the biggest deals in the MLP industry in recent years.

I explain why Western Midstream, Hess, and Targa are good buys.

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Oneok (NYSE: OKE) stock price has moved sideways in the past few days as crude oil and natural gas prices retreats. The stock was trading at $63 on Friday, 31% above the lowest level in  2022. Now, the $28 billion company has agreed to acquire Magellan Midstream Partners in a $19 billion deal. So, which are the best MLP stocks to buy?

Western Midstream Partners (NYSE: WES) is a leading MLP valued at more than $9.7 billion. The company has operations in the Delaware Basin in West Texas and New Mexico. Like other MLPs, the company has seven pipelines and 71 processing and treating facilities. 

Western Midstream Partners has a dividend yield of 7.87% and a payout ratio of 79.68%. It is also a cheap company, trading at a forward PE ratio of 9.16 and a forward PE of 9.0. This is much lower than that of Magellan Partners, which has a trailing PE of 11.83.

Western Midstream Partners is even growing at a faster pace than Magellan. It has a forward EBITDA growth of 4.30% compared to MMP rate of 3.55%. Also, its EBITDA CAGR rate in the past three years stands at 6% vs MMP’s 0.91%. Western is also more profitable, with an EBITDA margin of 58.22%.

Hess Midstream (NYSE: HESM) is a leading midstream company mostly owned by Hess Corporation. The company provides its fee services to both Hess Corporation and other firms. Its assets are in the Bakken and Three Forks area in North Dakota.

Hess Midstream is an MLP that has some better characteristics than Magellan Midstream Partners. For example, it has a forward dividend yield of 8.16% vs MMP’s 7.56%. Its valuation is also much better considering it has a forward PE multiple of 14 and a forward EV to EBITDA ratio of 4.36. Its EBITDA margin stands at 61% vs MMP’s 40%.

Targa Resources (NYSE: TRGP) is another MLP stock worth considering. The company, which has a market cap of over $15 billion is involved in gathering and processing and logistics and transportation solutions. Targa has a relatively smaller dividend yield of just 2.86% and a payout ratio of 40.26%. 

It has a forward EV to EBITDA of 8.21 vs MMP’s 10.55. Targa Resources is a highly profitable company with an EBITDA margin of 17%. The chart below compares the performance of MMP compared to Targa Resources, Hess Midstream, and Western Midstream Partners.

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