Enterprise Products Partners (EPD -0.63%) has delivered spectacular dividend growth since its formation nearly two decades ago. Overall, the midstream master limited partnership (MLP) has increased its payout 65 times since going public in 1998, including in each of the last 56 quarters. That distribution growth streak is showing no signs of ending because the company continues to develop new expansion projects that should give it the fuel to keep growing its 6.1%-yielding distribution.
Quickly coming up with a solution
Enterprise recently announced that it plans to build a crude oil export terminal off the coast of Texas. The terminal would have the capability to fully load Very Large Crude Carriers (VLCCs), which are mammoth oil tankers capable of transporting 2 million barrels of oil. Because of their size, they're the most cost-effective way to ship oil to Asia and Europe.
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Enterprise recently started loading crude on VLCCs at its Texas City terminal. However, because of port restrictions, Enterprise can only load 1.1 million barrels into VLCCs at this terminal. From there, the vessel must enter a lightering zone, which is an area away from the port where smaller tankers known as lightering vessels fill up the VLCC to its capacity. This process is more time-consuming and costlier than if Enterprise could fully load a VLCC.
That's why the company wants to develop an offshore crude oil terminal to solve this problem. The initial designs include building 80 miles of pipeline to a new offshore terminal capable of loading 85,000 barrels an hour into VLCCs. This facility would expand the company's capabilities and keep it at the forefront as one of the few with the capacity to export crude oil from the U.S., which will come in handy as output continues rising in the coming years.
Steadily refilling the tank
This project is the latest development by Enterprise Products Partners, which has been actively expanding its footprint. The company recently finished a major expansion wave after bringing $4.5 billion of growth projects online in 2017. Those investments, when combined with improving oil prices, position the company to deliver significant cash flow growth this year, giving it clear line-of-sight to increase the distribution each quarter.
However, even after finishing that large slate of projects, Enterprise entered 2018 with another $5.2 billion of expansions under construction that it expects to complete through 2019. While the company already finished another $800 million of those projects through the early part of the second quarter, it has quickly refilled the tank thanks to the success of its commercial and project development teams and currently has $4.9 billion of projects under way. That number appears poised to continue rising thanks to the development of the offshore oil export terminal as well as other projects the company has in the pipeline.
These expansions position Enterprise to grow cash flow at a steady pace for the next few years, giving it more fuel to increase its distribution to investors. In fact, after slowing its distribution growth rate last year so that it could retain more cash to help fund its burgeoning expansion backlog, the company could reaccelerate in 2019 given the volume of projects it's bringing online.
The outlook for income investors continues to brighten
Enterprise Products Partners has found no shortage of expansion opportunities in recent years due to its focus on providing solutions to the energy industry's infrastructure issues. That ability to solve problems has provided the company with several high-return expansion opportunities that have enabled it to consistently grow cash flow -- and its distribution. With more new projects on the way, it appears as though Enterprise should have no problem keeping that streak going for the next several years.
