Is It Time to Cash Out of Enterprise Products Partners?

Enterprise Products Partners (NYSE: EPD  ) is one of the largest midstream players in the country. Its units, however are trading near all-time highs and with a paltry yield of just about 3.8%. Is it time to take your profits and consider a switch into units of equally large Kinder Morgan Energy Partners (NYSE: KMP  ) , which have been lagging recently and yield around 6.9%?

Sticking with the leaders
There's something to be said for focusing on industry-leading companies. They may be costly to buy, but at least you know you're buying an established giant with a good track record. Enterprise Products Partners certainly falls into that category.

For starters, the partnership has increased its distribution in each of the last 40 quarters. Since master limited partnerships are, essentially, income vehicles, that's an impressive streak and speaks volumes about Enterprise Products Partners' success and commitment to unit holders. Looking at its assets is equally impressive. It has over 50,000 miles of pipelines, 200 million barrels of storage, dozens of processing facilities, and a growing export business.

(Source: btr, via Wikimedia Commons)

But growth is a key factor. Because Enterprise Products Partners is a toll taker, it has to keep building if it wants to keep growing. On that front, the partnership has nearly $7 billion worth of projects planned over the next two and half years. That comes on top of the more than $11 billion in projects it successfully built over the last three and half years.

Price is a factor
So Enterprise Products Partners is huge, has a history of success, and growth projects that should keep the momentum going. What's not to like? The shares are trading near all-time highs and have a relatively low yield. Essentially, everyone knows how great a company Enterprise Products Partners is.

If you are looking to buy in now, you need to understand that you are paying a rich price for this industry leader. If you have been lucky enough to go along for the ride, meanwhile, you should be asking yourself if it's time to cash in your chips. I know I am.

That's because Enterprise Products Partners isn't the only large and successful midstream LP. For example, Kinder Morgan Energy Partners, part of the Kinder Morgan family of companies, is another giant with 54,000 miles of pipelines, 180 terminals, an expanding CO2 business, and a recently acquired Jones Act shipping business. And while its dividend track record isn't as consistent as Enterprise Products Partners' 40 consecutive quarterly hikes, Kinder Morgan Energy Partners' first quarter increase was the 51st increase since 1997. That's not too shabby and helps explain why I own it. Note that the first quarter increases at Enterprise Products Partners and Kinder Morgan Energy Partners were both 6% year over year.

EPD Chart

EPD data by YCharts

Although there are notable differences between the two partnerships, I find the most striking to be price. Kinder Morgan Energy Partners is down nearly 5% over the past year while Enterprise Products Partners is up more than 20%. A big part of this is a concern about growth. However, Kinder Morgan Energy Partners has nearly $15 billion of projects in the pipeline to help drive future performance.

And while distribution growth at sister partnership El Paso Pipeline Partners (NYSE: EPB  ) has essentially come to a halt, that's clearly not the case at Kinder Morgan Energy Partners. (The pair are both run by the same general partner.) In my view, Kinder Morgan Energy Partners appears to have been thrown out with El Paso Pipeline Partners' bathwater.

Not interchangeable
Enterprise Products Partners is a market favorite for good reason. And while Kinder Morgan Energy Partners is a very different partnership in many ways, it, too, is a giant with a solid track record. Only it's currently out of favor. I own both, but I'm thinking about taking some profits in Enterprise and augmenting my Kinder Morgan Energy Partners position. If you have owned Enterprise, you should at least be considering booking profits.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 17, 2014, at 1:06 PM, bunngolf wrote:

    EPD has no GP to share profits with. KMP does.

  • Report this Comment On July 19, 2014, at 9:52 PM, tottart wrote:

    Reuben, Ha ! Hope you did not sell your EPD shares ... instead of selling, I am definitely buying more. Two for One split !

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Reuben Brewer

Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

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