Enterprise Products Partners (NYSE:EPD) has a lot to offer income investors. Not only does the large-scale master limited partnership (MLP) boast a rock-solid yield, but it also has compelling growth prospects. In this Industry Focus: Energy clip, host Nick Sciple and Fool.com contributor Matt DiLallo discuss:

  • The differences between Enterprise Products Partners and Kinder Morgan.
  • Why Enterprise Products Partners' balance sheet gives it a competitive advantage.
  • Enterprise Products Partners' growth projects.
  • The safety of the dividend.
  • Why Enterprise stands out as a top buy in the midstream space.

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This video was recorded on Oct. 10, 2019.

Nick Sciple: The other company that we're going to talk about today is Enterprise Products Partners. A little bit bigger than Kinder Morgan. A $60 billion company, about 30% larger than Kinder Morgan. When you compare Enterprise Products to Kinder Morgan, what are the main differences folks should see? What should stand out to you about this company specifically?

Matt DiLallo: The big difference is, Enterprise is a master limited partnership, whereas Kinder Morgan is a regular corporation. Master limited partnership can be a little bit more challenging for investors. You can't own those in an IRA, for example. You have to have them in a regular brokerage account. And they send what's called a schedule K-1 for taxes vs. the 1099 that most of us are familiar with. That can complicate your tax a little bit. They come later in the year. That's just something to be aware of.

The other big difference is, where Kinder Morgan is natural gas, Enterprise Products Partners is diversified, however, natural gas liquids is their big thing. We use that a lot to make petrochemicals. It's one of the main building blocks for plastics. They're much more focused on that, which is a niche market, but it's been a very great and profitable niche for them.

Sciple: Yeah. Another difference between them and Kinder Morgan is, Enterprise Products has a much more conservative balance sheet relative to Kinder Morgan, down in the threes on their debt/EBITDA. When you look at that part of the business, what stands out to you?

DiLallo: Definitely, the stronger balance sheet gives them more financial flexibility. They can invest in more growth projects. They have more capacity to make acquisitions if they find good deals. In this business, especially with what the industry's been through the past couple of years, the stronger the balance sheets, the better. That definitely gives them a competitive advantage.

Sciple: Yeah. When we take a look at the products they're investing in going forward, they have two pipelines currently operating in the Permian. What else are they investing in and going forward to start to grow their asset base?

DiLallo: I mentioned that they're very big into the NGLs and petrochemicals. One of the interesting deals they just signed was with LyondellBasell Industries. They're going to build a PDH plant. What it does, it'll take propane, which is one of those NGLs, and convert it to this basic building block for plastics. It's going to supply that to the chemical company under a long-term contract. If fits in well with what they're trying to do, to find outlets for these NGLs. Again, it's like oil and natural gas. We have so much of it here in the States that our options are to use it or to export it. They're doing both. They're building export projects for the NGLs, and then they're building these petrochemical plants that will use it.

On the export side, in addition to some NGL export projects, they've got this Sea Port Oil Terminal, or the SPOT terminal. That's an offshore export terminal. The reason that's interesting is that one of the ways that they can ship oil overseas is these very large crude carriers which carry two million barrels. They're so big that they can't fit into a lot of the ports. The only way to fully fill them up is to do it offshore. Otherwise, they have to truck oil; they can partially fill it and then they'll take these little ships and fill them up. But this allows them to do it much more efficiently. This is going to be built offshore. It'll be a much cheaper and more efficient way to export oil. That one could come online in a couple of years.

With these projects, it gives them a lot of visibility into growth. They've got $6 billion in projects currently under construction, with five to 10 that they're working on. A lot of growth coming online with them.

Sciple: On that export deal, they're partnering with Chevron. Obviously a great partner to have in the oil exploration and production area. When you look at Enterprise Products Partners, the dividend, obviously very important for them, yielding over 66% -- [laughs] excuse me, not 66%.

DiLallo: [laughs] That'd be amazing.

Sciple: [laughs] Yeah, that'd be pretty good! Yielding over 6%. They've increased their dividend for 61 straight quarters. Can it get much safer than this dividend that this company has paid out?

DiLallo: It's one of the safest in the midstream sector. We mentioned the metrics before, but 85% plus fee-based cash flow. 1.7X coverage ratio, which is really good. And then, the top-notch balance sheet. This is, in my opinion, one of the safest dividends in the energy industry.

Sciple: Yeah. If you can get a safe 6% dividend when it appears that the growth that's going to come out of this region, and the current market environment, it appears very attractive.

When you look at these three companies that we've talked about today -- Plains All American, Enterprise Products Partners, and Kinder Morgan -- of those three, if you had to only buy one today, which one would you be most excited about buying?

DiLallo: It's a really tough question because I like all three. I own Enterprise and Kinder Morgan personally. Of those two that I already own, I recently added to Enterprise. I just really like the strength of the balance sheet, the diversification, the growth projects they have coming online. We mentioned Kinder Morgan has some longer-term opportunities in natural gas, but there's a lot more visibility with Enterprise Products Partners in the near term with all those projects that they've signed up for. That's my favorite right now.