Last year was a brutal one for Enbridge Energy Partners (NYSE:EEP). Units of the master limited partnership (MLP) plummeted more than 45% due to some issues with its natural gas gathering businesses, which put pressure on its finances. However, the company addressed those problems by selling that business to its parent, Canadian energy infrastructure giant Enbridge (NYSE:ENB), which, along with some other moves, helped solidify Enbridge Energy Partners' finances and sharpened its focus on low-risk oil pipelines.

That progress seemed to have gone unnoticed by the market. In fact, after crunching the numbers, I believed it had become just too cheap not to buy, which is why I added some units of the high-yielding oil pipeline MLP to my portfolio in January. However, as is often the case with investing, the market sold off shortly after that purchase, and now units are even cheaper, increasing the yield to 11.2%. Since I had planned on adding to my position over time, I'm going to take advantage of the recent sell-off to buy a few more units at an even lower price.

Two hands counting $100 bills.

Image source: Getty Images.

New information, but the story hasn't changed

Since adding Enbridge Energy Partners to my portfolio in January, the oil pipeline company has released its fourth-quarter and year-end results for 2017. While that report showed an 8.3% drop in earnings and a 4.5% decline in distributable cash flow (DCF) versus the year-ago period, that's entirely due to the change in the makeup of its portfolio. As noted earlier, the company sold its troubled natural gas gathering and processing business to Enbridge last year, which reduced earnings by $38 million in the quarter. Itt also sold its Ozark Pipeline to MPLX (NYSE:MPLX) last year to raise cash.

In exchange, the company teamed up with MPLX and Enbridge to buy a stake in the newly built Bakken Pipeline System developed by Energy Transfer Partners (NYSE:ETP). That deal provided Enbridge Energy with the ability to earn "attractive risk-adjusted returns," according to president Mark Maki, who further noted that the system "is underpinned by a significant level of take-or-pay contracts with high credit quality counterparties" and that "the investment offers the potential for future low-cost expansions." Those same factors drew Enbridge and MPLX to the deal while Energy Transfer Partners was able to get cash that it desperately needed to continue financing its huge slate of expansion projects.

As a result of these portfolio changes, Enbridge Energy Partners expects to produce between $720 million to $770 million of DCF this year. That's enough money to cover its lucrative distribution by 1.15 times. While that's slightly below the 1.2 times coverage the company expected when it first unveiled its 2018 outlook last year, the difference is entirely due to the recent changes in the U.S. tax law that will slightly impact earnings on its Lakehead system. That still leaves it with ample coverage for the payout and excess cash to continue paying down debt so it can hit its long-term leverage target.

Several oil pipleines overhead with a blue background and oil pumpjacks  in the foreground.

Image source: Getty Images.

The numbers should only improve from here

Enbridge Energy Partners expects its financial metrics to strengthen over the next several years. The foundation of that view is the fact that 96% of its revenue comes from predictable sources like cost of service or take-or-pay agreements, providing the company with stable cash flow. In addition to that, the company has an investment grade balance sheet with improving credit metrics thanks in part to its healthy coverage ratio. Finally, it has visible growth coming down the pipeline through organic expansion projects and joint funding agreements with Enbridge.

For example, Enbridge Energy Partners currently holds a 25% stake in a joint venture with Enbridge (which owns the other 75%) that together controls a 27.6% interest in the Bakken Pipeline. However, Enbridge Energy Partners has a five-year option to buy an additional 20% stake in that venture from Enbridge at net book value. The company holds similar options for a 15% stake in the Mainline Expansion Project and 39% of the Line 3 Replacement project. Overall, it could invest up to $1.6 billion on these acquisitions in the coming years to further bolster cash flow and provide more support for the lucrative distribution.

All signs point to a stable income stream

Enbridge Energy Partners lost value along with the rest of the market last month, which has pushed its already eye-catching yield even higher. Given that nothing fundamental about the company's outlook changed over that time frame, I plan to take advantage of that sell-off to add more of this top income stock to my portfolio this month.

 

Matthew DiLallo owns shares of Enbridge and Enbridge Energy Partners. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool has a disclosure policy.