Why Enterprise Products Partners Might Be the Best High-Yield MLP to Buy Today

Enterprise Products Partners' high yield is backed by a stable business, strong demand for its services, and a recent positive catalyst that will all produce hefty distributions for years to come.

Jul 13, 2014 at 11:57AM

As you've probably heard, the United States is in the midst of a full-fledged energy boom. Due to abundant domestic supplies and revolutionary drilling techniques, oil production is quite simply soaring. In fact, the U.S. Energy Information Administration reported that oil production in the United States last year hit a level not seen since 1989.

All this oil production means the companies that operate energy infrastructure across the country stand to reap huge rewards. After all, once oil is discovered and produced, it needs to be treated, stored, and transported around the country. That's where midstream oil and gas companies like Enterprise Products Partners (NYSE:EPD) and Magellan Midstream Partners (NYSE:MMP) come in.

Enterprise Products owns a massive network of oil and gas storage facilities, terminals, and pipelines all across America. It operates a wonderfully consistent business, because its services act very much like toll roads. These services collect fees based on volumes, which provides insulation against often-volatile swings in oil prices.

If you're on the hunt for a high-yielding stock you can buy today, look no further than Enterprise Products Partners.

America is awash in oil
The U.S. is getting closer to true energy independence by the day. The EIA states that last year, U.S. oil production averaged 7.5 million barrels per day. This represented a 15% increase from the year before, and was the biggest annual percentage increase since 1940. The surge in production was largely due to huge success in the Permian Basin and Bakken formation, which collectively accounted for 83% of the growth.

Because of this, Enterprise Products Partners is firing on all cylinders. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 8% last quarter. Distributable cash flow, which measures how much cash a company generates that it can pay out to investors, soared 19%.

Enterprise Products received a sizable contribution from its onshore crude oil pipelines and services segment. Total crude oil pipeline volumes jumped 28% to 1.3 million barrels per day in the first quarter. The company's significant presence in South and West Texas, in the Eagle Ford shale, was the primary contributor.

Likewise, other players in the same industry are feeling the same benefits. Magellan Midstream realized 56% growth in its crude oil operating margin.

Enterprise Products Partners stands to do even better going forward, especially now that the U.S. Commerce Department has announced it will allow the company to export U.S. condensate to foreign buyers. The Obama Administration has loosened the four-decades-old ban on condensate, a form of ultra-light oil that can be turned into gasoline and diesel. Enterprise Products is one of only two companies that will be allowed to export condensate.

The great thing about midstream operators is that they operate highly stable business models, which are very similar to toll roads. Enterprise Products Partners stores, treats, and transports oil and gas, and receives fees based on volumes. As a result, it's not highly dependent on fluctuations in the price of crude oil.

This stability allows it to maintain an impressive history of rewarding its unitholders.

A high-yield you can confidently buy right now
Recently, Enterprise Products increased its distribution for the 40th quarter in a row, and yields 3.7%. Its distribution is up 5% from the same quarter one year ago. Enterprise Products has come through with 49 distribution increases since its initial public offering in 1998.

Thanks to the steady nature of its business, it's able to pass on regular distribution raises to investors. And, because of its status as a master limited partnership, it's required to distribute the vast majority of its cash flow through to unit holders in exchange for a favorable tax structure.

The bottom line is that Enterprise Products offers a rock-solid yield, which it increases every quarter. It operates a stable toll road-like business that generates reliable cash flow. Since the U.S. is seeing oil production steadily rise, demand for Enterprise Products' services should remain strong for many years. That means its hefty distributions will almost certainly keep flowing, just like the oil it processes.

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Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners and Magellan Midstream Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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