This week we’re adding another dividend power play to their ranks, Magellan Midstream Partners (NYSE: MMP). Like the quartet already in the Portfolio, Magellan depends mainly on fee-based income from energy infrastructure, the very safest master limited partnership (MLP) business.

The bulk of income comes from a petroleum products transportation and storage system stretching over 13 states with some 8,700 miles of pipeline and 49 terminals. The MLP also owns seven marine terminals for petroleum products on the Atlantic and Gulf coasts, 27 inland terminals primarily located in the southeast US and a 1,100 mile ammonia pipeline system serving the US farm belt.

Since spinning off from Williams Companies (NYSE: WMB) in 2001, Magellan has steadily added assets with a combination of acquisitions and organic expansion of its own facilities. And management has been able to continue executing on that strategy this year, despite the weak economy and tight credit conditions.

Last month Magellan announced the opportunistic purchase of pipeline system assets from the bankrupt Longhorn Partners Pipeline LP. Longhorn is a former unit of Flying J, a privately held oil producer, refiner and pipeline operator that filed for Chapter 11 bankruptcy protection last December.

Its demise hands Magellan some 700 miles of valuable pipeline for transporting refined petroleum products between Houston and El Paso, Texas. And it also includes a storage terminal in El Paso with a five-bay truck loading rack and more than 900,000 barrels of storage capacity.

The purchase price of $250 million plus an estimated $90 million in inventory should ensure the deal is immediately accretive to Magellan’s distributable cash flow. Moreover, the system’s current capacity of 72,000 barrels a day has the potential to be expanded to 200,000 barrels, providing considerable upside.

This type of organic project has become Magellan’s preferred way to grow its business in recent years. In a recent conference call, management stated its basic goal is to have a “low-risk profile” centered around “fee-based assets.” That’s in fact where the vast majority of this year’s planned $220 million in capital spending is slated to go, $23 million of which was spent in the first quarter.

Organic growth projects are far less risky than greenfield deals or even asset purchases. For one thing, by definition management already knows the situation well by operating the asset being expanded. As organic projects are generally on existing sites, there are far fewer permitting and regulatory approvals required before work can begin.

Further, the additional capacity constructed can be contracted out quickly, often to current customers. In fact, projects are often undertaken at the behest of current customers, so the contracts are generally inked even before work on a project begins and financing secured.

Finally, organic projects are generally smaller in scale, requiring less immediate cash outlay and reducing ultimate financial risk. As a result, they’re generally accretive to cash flow upon completion, and in a very predictable way.

Last month, for example, Magellan management affirmed its previous forecast of $330 million in distributable cash flow for all of 2009. That’s a boost of almost 10 percent from last year’s levels. And it’s thanks largely to steady expansion of low-risk organic growth projects that more than offsets the slightly weaker results of existing assets due to the recession. Management currently estimates it has roughly $500 million potential organic projects in the works, which promises to keep cash flow rising steadily for years to come.

As for financing, Magellan experienced few problems securing credit during the crisis last fall. Moreover, last month it was able to price $300 million in 10-year bonds at a premium of just 280 basis points to US Treasury equivalents. The $296.5 million in net proceeds are enough to pay off all of the partnership’s credit lines, as well as provide long-term funds for further cash flow-generating organic growth projects.

The successful debt offering is a clear affirmation of smart money recognition that Magellan is safe money. So is the affirmation of its credit rating last month by credit raters Standard & Poor’s and Moody’s at BBB and Baa2, respectively.

At one point during last fall’s financial meltdown, Magellan units fell as far as the low 20s. Like other high-quality MLPs, it’s since recovered most of those losses. Several potential catalysts, however, promise to catapult both the unit price and distribution substantially higher over the next 12 to 18 months.

Consistent, steady cash flow growth from project expansion is one. Another is the proposed merger of Magellan with its general partner Magellan Midstream Holdings (NYSE: MGG). The deal basically calls for all units and “distribution rights” of Midstream Holdings to be swapped for approximately 39.6 million newly minted units of Midstream Partners.

Midstream Holdings has no productive assets other than its general partner interest in Midstream Partners. So the move will create at least $1 million in annual cost savings by eliminating duplicate functions, such as filing financial documents for two separate entities. It will also entitle Midstream Partners shareholders to all upside in cash flow growth, by eliminating sharing provisions with the general partner that kick in when certain targets are surpassed.

The cost of the deal to Midstream Partners unitholders is roughly 4 percent dilution of the share base. Coupled with the negative impact of the weak US economy, that’s likely to put the brakes on distribution growth for the rest of 2009, though it’s already been bumped up by 6 percent this year.

Even with a sizeable 25 percent price premium paid for Midstream Holdings, however, this deal still increases Midstream Partners unitholders’ share of cash flow from partnership assets by about 13 percentage points. That’s a big plus, the benefit of which will show up as cash flows pick up in coming quarters.

Meanwhile, despite the near-term dilution, Midstream Partners’ distribution coverage will remain among the best in its business: The payout ratio based on management’s projection for 2009 distributable cash flow is just 57.5 percent. That’s a great deal of protection for the 8 percent-plus distribution, the bulk of which is likely to be tax-deferred return of capital this year.

Buy Magellan Midstream Partners up to 38. Note that the merger exchange ratio for each unit of Magellan Midstream Holdings is 0.6325 units of Midstream Partners. That’s only a slight premium to Midstream Holdings’ current price as of this writing. The deal does, however, build in a substantial distribution increase, effectively raising the payout per current Midstream Holdings’ unit from an annual rate of $1.44 a share (paid quarterly) to a rate of almost $1.80 a share.

The risk is Midstream Holdings’ unit price is likely to plummet if this deal is not approved by regulators and unitholders. That’s unlikely. But given the possibility however dim, we’re adding Magellan Midstream Partners to the Conservative Holdings rather than Midstream Holdings.

The other significant news from the Conservative Holdings since last month is the announced acquisition by Enterprise Products Partners (NYSE: EPD) of sister MLP TEPPCO Partners (NYSE: TPP). The $3.3 billion deal features a solid premium for TEPPCO owners of 1.24 Enterprise shares per share.

TEPPCO units have surged since the deal was announced to the point where the remaining premium is basically zeroed out by an effective distribution cut from an annual rate of $2.90 per unit to $2.67 a share. (Enterprise’s current rate of $2.15 per unit times 1.24 units.)

Given that the units would likely take a big hit in the unlikely event the deal fails to pass regulatory and unitholders’ approval, TEPPCO Partners is a hold.

The Federal Energy Regulatory Commission doesn’t have pass/fail power over this deal. But it will be reviewed by the Federal Trade Commission for market power implications, which will likely require some asset divestitures.

For Enterprise unitholders, however, this deal is all upside from here. The combination will be the largest energy infrastructure MLP in the US, with some 48,000 miles of energy product pipelines and related storage assets along with North America’s the largest inland barge transportation operations.

The deal is all equity, so there’s no additional debt added and annual cost savings are expected to be at least $20 million. More than 75 percent of income will be from fee-based assets, impervious to energy price swings, with the balance in operations that feature some commodity exposure but also dramatic upside potential. Credit raters have given their benediction for the deal, which should wind up being credit positive by cutting costs and enhancing scale and access to low cost financing.

Dan Duncan, the major equity holder in both Enterprise and TEPPCO and purportedly the “richest man in Houston” now, is certainly a believer in the deal. He’s foregoing all distributions for six quarters at EPCO, his privately owned vehicle for holding partnership interests, in order to help the new Enterprise shepherd cash flow for expansion.

Coupled with the 8.6 percent yield–increased for 19 consecutive quarters and counting–this should be enough to make anyone a believer. Solid even in the highly unlikely event this deal fails, Enterprise Products Partners remains a strong buy up to 27.