Oil stocks have rallied significantly this year on the back of strong oil prices. The West Texas Intermediate crude oil price is up roughly 28% while the S&P 500 Energy sector index is up roughly 34% so far in 2021. Oil major ExxonMobil's stock is up 44% while BP and Chevron stocks are each up around 26% year to date.
While the rally in oil stocks is welcome news for energy investors, it's important to remember that many oil stocks have already rallied from their lows last year. Moreover, as always, these stocks could be volatile and may fall again if oil prices fall. So it would be a better idea to invest in stocks that can do well irrespective of oil prices. Though Enterprise Products Partners (EPD 0.50%) isn't immune to oil prices, it has proved that it can generate loads of cash flow and dividend income, even when oil prices aren't as supportive as they are right now. Let's see what makes it my top oil stock today.
Strong first-quarter performance
Enterprise Products Partners reported strong financial and operational performance in the first quarter. The company reported net cash flow from operating activities of around $2 billion, marginally higher compared to the year-ago quarter. Its distributable cash flow for the quarter was $1.7 billion, up from $1.5 billion in Q1 2020.
Enterprise Products benefited from increased refined products, liquids, and natural gas demand due to a recovering economy and winter demand. Higher commodity prices also contributed to its earnings growth.
The company's management noted that a returning demand from refineries, the manufacturing sector, and the petrochemicals industry mean improving demand for Enterprise Products' assets going forward. Likewise, improving demand and commodity prices have boosted producer activity. Those are all positive signs for Enterprise Products and other energy companies after a challenging 2020.
Solid performance in all environments
While Enterprise Products' first-quarter results are encouraging, it is the company's resilient performance even in challenging market conditions that sets it apart from its peers. As a midstream operator largely involved in the transport and storage of oil, gas, and liquids, Enterprise Products' earnings are less volatile compared to oil and gas producers. However, what truly provides resilience to Enterprise Products' earnings are its fee-based contracts, as well as its huge, integrated, and diversified asset base.
As an example, in the latest quarterly call, Enterprise Products' management suggested that even though there is an overbuilt crude export capacity in the U.S., the company's export services are among the most efficient and economical. That helps it in securing customers better compared to other midstream service providers. Indeed, Enterprise Products' robust performance has proved the benefits of the company's diversified assets, market expertise, and financial discipline.
Enterprise Products boasts a debt-to-EBITDA ratio of 3.3, one of the lowest among its peers. On a trailing-12-months basis, the company paid 68% of its net cash flows from operating activities as distributions (MLP speak for dividends). So it has ample cushion to cover its distributions even if earnings fall a bit.
Attractive dividend yield
Finally, Enterprise Products stock offers an alluring distribution yield of 7.7% at the time of this writing. The company has grown its distributions for 22 consecutive years. It raised its quarterly distribution by 1.1% in the latest quarter.
Enterprise Products expects to spend $1.6 billion on capital projects in 2021, and it currently has around $3.4 billion of capital projects under construction. That should fuel its earnings growth in the coming years. All in all, Enterprise Products' solid asset base, conservative leverage, healthy distribution coverage, and strong track record of distribution growth, coupled with a recovering demand for oil and gas products, makes it a compelling buy right now.