What happened
In most cases, investors would celebrate when a stock generates double-digit returns in a single year. For Enterprise Products Partners (EPD -0.41%), though, its double-digit performance in 2021 feels a little discouraging.
Enterprise's stock gained 12.1% last year, according to S&P Global Market Intelligence. If you include its high-yield dividend, then the total return for the year was 21.4%. However, the broader energy market, as measured by the S&P GSCI Energy Index, generated a 60.7% total return, and the S&P 500 total return was 28.7%.
^SG4F data by YCharts.
So what
Looking at both Enterprise's business over the past year and the oil and gas landscape, there is a lot to like. The company has maintained a strong balance sheet and generated gobs of cash over the past several years when the oil and gas market was decidedly weak. With the outlook for the industry looking up, one would assume that investors would want to jump in on a stable, income-generating stock like Enterprise.
There wasn't much that happened in 2021 that would dissuade anyone from this idea, either. Through the first nine months of 2021, the company generated $4.66 billion in free cash flow, which is an annual record with one more quarter left to report. It also has the most cash on the balance sheet ever, and its debt levels are below management's target range.
And yet, the company's performance still lagged the broader market.
Image source: Getty Images
Now what
We could chalk up 2021's underperformance to the market's periodic irrationality, but there are some reasons why the stock has struggled in recent years. Back in 2017, it throttled back its payout growth to a tepid rate of 1%. Management's strategy was to free up cash to invest in the business and not rely as much on debt and equity to fund growth. At the time, it said it would get its payout growth back on track in 2019. Well, we went all the way through 2021 without that happening.
Just this week, though, management announced it was raising its payout by 3.3% for the quarter and that it had bought back $125 million worth of shares in the fourth quarter. So it looks like management is making good on its long-overdue promise. If it can continue to accelerate distribution growth and buy back shares at these low prices, then perhaps its 2022 performance will have a better chance at keeping pace with the market, or even beating it.
