What happened
Shares of Enbridge Energy Partners (EEP) jumped on Thursday and were up as much as 10.3% by 2:45 p.m. EST. Driving the surge was the master limited partnership's outlook for 2018 and beyond.
So what
Enbridge Energy Partners announced that it expects to generate between $775 million to $825 million in distributable cash flow in 2018. That would provide it with enough money to cover its 9.5%-yielding distribution by 1.2 times at the midpoint of the guidance range.
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In addition, the company provided a glimpse of what to expect through 2020. Enbridge Energy Partners noted that its Lakehead System should continue generating stable cash flow. Meanwhile, earnings from the Bakken Pipeline System and Mainline Expansion Project should increase due to rising volumes on the former and higher tolls on the latter. Furthermore, the company noted that it holds the option under existing joint funding agreements to acquire additional interests in those two systems as well as the Line 3 Replacement Program, with the potential to invest up to $1.6 billion if it exercises all its options.
The growth from those sources should enable the company to increase its already generous distribution to investors by an average of 3% per year through 2020. It can also achieve that growth rate while maintaining around 1.2 times distribution coverage and pushing its leverage ratio down to a more comfortable debt-to-EBITDA ratio of 4.0 times by 2020.
Now what
Enbridge Energy Partners' outlook shows that its repositioning plan worked and that the company is now back on a more solid foundation. As a result, it can start growing its payout once again, while maintaining conservative coverage and leverage metrics. That makes it a much more compelling choice for investors seeking an ultra-high-yield option.
