Enterprise Products Partners (EPD 1.43%) has been a superb dividend stock throughout its history. The master limited partnership (MLP) has increased its payout like clockwork each year. Because of that, it's closing in on an elite level.
That success in growing its distribution was one of the key takeaways on the company's third-quarter conference call. Here's a look at what management had to say about what's ahead for its 6.7%-yielding payout.
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Coming up on year No. 22
Enterprise's CEO Jim Teague started the call by providing a brief overview of the company's third-quarter results. He noted that it generated $1.6 billion in cash during the quarter, which was enough to cover its high-yielding distribution by a comfortable 1.7 times. That pushed its year-to-date tally to $5 billion, which is up about 14% year over year and has covered its payout by 1.7 times. Because of that, the company has been able to retain $2.1 billion of excess cash so far this year, most of which it has reinvested in expansion projects.
He then turned his attention to what the company's growing cash flow means for its distribution. The CEO stated:
With our upcoming distribution payment in November, we begin our 22nd year of consecutive distribution growth. We continue to get closer to the 25-year Dividend Aristocrats benchmark, which is a select group of stocks with over 25 years of consecutive dividend increases, sort of in the best of the best of dividend growth stocks. Over this time, we have increased our quarterly distribution rate 71 times through numerous business cycles, including the financial crisis and the last commodity cycle for energy.
Enterprise's steadily rising cash flow has enabled the company to continue increasing its distribution. As the CEO notes, it will soon hit its 22nd straight year of increasing its distribution, putting it just three years shy of becoming a Dividend Aristocrat. What's impressive about this streak is that the company has continued to grow its payout during some very challenging market conditions.
A visible path to dividend royalty
While a lot can happen in the next three years, it's highly likely that Enterprise Products Partners will achieve the status of a Dividend Aristocrat. Driving that view is the strength of the company's financial profile and the increasing visibility of its growth prospects.
As noted, the company currently covers its high-yielding payout by 1.7 times, which is well above the 1.2 times comfort level of most MLPs. Because of that, Enterprise Products Partners has been able to generate lots of excess cash. That's given it the funds to invest in expansion projects while maintaining a top-notch financial profile. It boasts having the highest credit rating among MLPs, which it backs with a leverage ratio of less than 3.5 times earnings before interest, taxes, depreciation, and amortization (EBITDA). That's well within the sub-four times comfort level of most MLPs.
Meanwhile, the company has one of the best expansion backlogs in the sector. Enterprise added a net $3.1 billion of new projects to its slate during the third quarter, boosting the total to $9.1 billion. These expansions should come online between now and the end of 2023. That provides the company with some of the best growth visibility in the sector.
It's also worth noting that this number doesn't include a contractually secured offshore oil export terminal that the company intends on building as long as it receives government approval. If that happens, it will enhance the company's already excellent growth prospects.
Closing in on an elite group
Enterprise's combination of financial strength and visible growth makes it seem likely that the company can grow its payout in each of the next three years. Because of that, it appears well on track to achieve the main attribute of a Dividend Aristocrat. Reaching that elite level would provide further confirmation that Enterprise Products Partners is a top-tier stock for income-seeking investors to own for the long term.
