Last year might go down as one of the most challenging in the history of the oil market. However, Enterprise Products Partners (NYSE:EPD) navigated those challenges quite well, as evidenced by its solid fourth-quarter results. The MLP's stability during the storm enabled it to continue increasing its high-yielding distribution. It's now in a solid position to benefit as the energy market recovers.

Drilling down into Enterprise Products Partners' fourth-quarter results

Metric

Q4 2020

Q4 2019

Year-Over-Year Change

Adjusted EBITDA

$2.057 billion

$2.019 billion

1.8%

Distributable cash flow (DCF)

$1.629 billion

$1.634 billion

-0.3%

DCF per unit

$0.74

$0.74

0%

Distribution coverage ratio

1.6 times

1.7 times

-5.9%

Data source: Enterprise Products Partners.  

Enterprise Products Partners ended 2020 on a solid note. Its earnings improved year-over-year, while its cash flow was nearly flat. For the full year, the MLP generated $8.06 billion of adjusted EBITDA and $6.41 billion of distributable cash flow, down 0.8% and 3.3%, respectively, from 2019's record levels. That relative stability amid such a challenging oil market showcased the durability of its diversified midstream footprint:

Enterprise Products fourth quarter earnings in 2020 and 2019.

Data source: Enterprise Products Partners. Chart by the author.

Enterprise's natural gas liquids (NGL) operations delivered steady results during the fourth quarter as its gross operating margin improved by 0.7%. The company benefited from completing two new NGL fractionators last year, which more than offset weaker results at some of its legacy gas plants.

Crude-related earnings improved by 2.8% during the fourth quarter, fueled mainly by higher average sales margins in its marketing business. That helped offset lower earnings on its South Texas Pipeline System and Seaway pipeline due to lower volumes caused by weaker oil prices last year.

Earnings from its natural gas infrastructure dipped 5.3% during the fourth quarter due to lower revenue in its Colorado, Wyoming, and East Texas gathering systems. The company partially offset those weak spots with higher gathering volumes in the Permian Basin thanks to the recent expansion of the Orla gas processing plant and the start-up of the Mentone facility.

Finally, petrochemical and refined products earnings improved significantly, jumping 27% during the period. Fueling that surge was significant volume growth for propylene services. That more than offset pandemic-related weakness on its TE Products pipeline and products related to gasoline production.

A pipeline connection to an oil refinery.

Image source: Getty Images.

A look at what's ahead for Enterprise Products Partners

Enterprise Products Partners generated $2.5 billion in excess cash after covering its distribution last year. The company used those funds to repurchase $200 million of its common units and finance the bulk of its $3 billion capital program. It covered the difference with its top-notch balance sheet, enabling it to end 2020 right at its 3.5 times debt-to-EBITDA target level.

The MLP currently expects to invest $1.6 billion in growth projects this year, with three scheduled to enter service and start generating cash flow by year-end. Meanwhile, it anticipates spending $800 million on expansions in 2022. However, those numbers don't include the proposed Sea Port Oil Terminal that's awaiting government approval.

With growth-related spending coming down, the company is on track to generate significant excess cash this year after covering its distribution. As a result, Enterprise plans to evaluate distribution growth quarterly this year. It nudged its fourth-quarter payout up by 1.1% from the prior-year level and has now increased it for 22 straight years. The company could also use its excess cash to continue repurchasing units or start making acquisitions.

Meanwhile, the company is in the early stages of planning for the energy transition away from fossil fuels toward cleaner sources. It's looking for opportunities to increase its use of renewable power and anticipates that it will get 25% of its energy from renewable sources by 2025. In addition, it has several growth projects in the early stages of development focused on the theme of energy evolution.

Proving the durability of its income stream

Enterprise Products Partners demonstrated the resilience of its business model last year as its earnings and cash flow proved to be very stable during one of the most challenging energy markets in history. The company was able to continue increasing its distribution, which now yields nearly 8.7%. That payout seems likely to continue rising in 2021 as the energy market improves and Enterprise's capital spending winds down. It stands out as an ideal option for yield-seeking investors to consider buying.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.