Please ensure Javascript is enabled for purposes of website accessibility

This Unstoppable 8%-Yielding Dividend Stock Has the Fuel to Keep Heading Higher

By Matthew DiLallo – Updated Apr 1, 2022 at 4:25PM

Key Points

  • Enterprise has pushed its distribution growth streak to 23 straight years.
  • It recently made a needle-moving acquisition, which should fuel future distribution growth.
  • The MLP also has several expansion projects under construction and more in the pipeline.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock recently added more fuel to continue growing its payout.

Enterprise Products Partners (EPD -0.72%) has been an unstoppable dividend stock over the years. The energy midstream-focused master limited partnership (MLP) recently declared another dividend increase, something it has done for 23 straight years. That streak isn't showing any signs of stopping after Enterprise recently added more fuel to grow its cash flow.

With a dividend yield currently around 8% and a rock-solid payout that should keep heading higher, Enterprise is an attractive option for income investors to consider in today's low-yield environment.

A person pointing to dollar signs next to a chart showing steady growth.

Image source: Getty Images.

The dividend keeps growing and growing

Enterprise Products Partners recently increased its distribution again, pushing its fourth-quarter dividend payment up to $0.465 per share ($1.86 per share annualized), a 3.3% increase compared with the prior-year period. That continued its history of steadily returning more cash to investors, with 2021 marking its 23rd consecutive year with a distribution increase.

It also makes Enterprise Products Partners a bit of an outlier in the energy sector. Many of its peers have reduced or eliminated their dividends due to all the volatility in the industry. However, Enterprise has avoided this fate by operating stable midstream assets that generate steady contractually secured cash flows. It has also maintained a top-tier financial profile, including an investment-grade credit rating backed by low leverage and a conservative dividend payout ratio. That's given it the financial flexibility to continue growing its payout during tough times while also investing in expanding its operations.

The fuel to keep growing

Enterprise recently used its financial flexibility to add even more fuel for future growth. It agreed to acquire Navitas Midstream Partners from a private equity fund for $3.25 billion in cash. That deal provides the company with a strategic entry into the energy-rich Midland Basin. 

Navitas currently operates extensive infrastructure in the Midland, including about 1,750 miles of pipelines and over 1 billion cubic feet per day of natural gas processing capacity. These assets generate steady cash flow backed by long-term, fee-based contracts. Meanwhile, Navitas also has visible growth potential. Its customers have dedicated acreage to Navitas that holds more than 10,000 future drilling locations or 15 years' worth of inventory at their current drilling pace. That could support additional growth opportunities in the future.

Enterprise is using its strong balance sheet to finance the deal. Because of that, it expects it to be accretive to its distributable cash flow per share by $0.18 to $0.22 per share next year. That will give the company the fuel to support additional distribution growth.

More fuel beyond Navitas

The Navitas acquisition is additive to Enterprise Products Partners' already solid growth prospects. The MLP had $2.9 billion of major capital projects under construction at the end of last year's third quarter, which should enter service by the second quarter of next year. As they do, they'll supply incremental cash flow to support continued distribution growth.

In addition to those projects, the MLP has several others in the pipeline. For example, it recently partnered with oil giant Chevron (CVX -2.03%) to explore potential carbon capture and storage (CCS) projects. Those projects could help the industry reduce its carbon emissions, potentially making the use of fossil fuels less damaging to the environment. The company is also developing an offshore oil export terminal that counts Chevron as its anchor shipper. Meanwhile, it's exploring opportunities in hydrogen, where it's already an industry leader. Its ability to secure these and other projects, especially in emerging fields like CCS and hydrogen, will give it even more fuel to grow its distribution in the future.   

A great dividend growth stock

Nothing has been able to stop Enterprise Products Partners from growing its distribution over the past couple of decades. And it doesn't look as if anything will prevent it from continuing to do so for at least the next few years. The MLP recently added more fuel for distribution growth by agreeing to acquire Navitas and is exploring emerging lower-carbon growth opportunities in CCS and hydrogen. It continues to look like a solid option for income investors in an environment where an attractive yield is getting harder to find.

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

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.