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Why Units of Enterprise Products Partners Rebounded 27% in April

By Matthew DiLallo – May 8, 2020 at 2:04PM

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A few factors helped the MLP bounce back last month.

What happened

Units of Enterprise Products Partners (EPD -5.22%) have been excruciatingly volatile this year. The MLP plummeted nearly 40% in March due to cratering crude prices. It clawed some of that back after rallying 27.3% in April, according to data provided by S&P Global Market Intelligence. Aside from some stabilization in the oil market, the MLP reported solid first-quarter results, which helped lift some of the weight on the company's valuation. 

So what

Enterprise Products Partners' earnings and cash flow both slipped by low-single-digit rates during the first quarter as it felt some impact from all the volatility in the oil market. The company also warned that the glut of oil due to the COVID-19 outbreak would likely weigh on volumes during the second quarter. Because of that, it planned to cut capital spending by $1 billion as well as cut an additional $100 million of maintenance-related projects. 

Pipelines heading towards the bright sun.

Image source: Getty Images.

Those spending cuts will reduce the amount of money Enterprise needs to borrow to finance expansion. Because of that, investors have more confidence that it can maintain its payout during the downturn. 

Now what

With units of Enterprise Products Partners still down sharply for the year, its distribution yields right around 10%. While a payout that high is often a red flag, that doesn't appear to be the case with Enterprise Products Partners. The company has a strong balance sheet and high-quality cash flows, which supports its belief that it can defend and maintain its distribution during this downturn. Because of that, it's a highly attractive option for yield seekers to buy even after last month's rebound. 

Matthew DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

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