Electrification of transport is clearly a trend that's here to stay. However, that doesn't necessarily mean the demise of energy companies, as many investors seem to think. Oil and gas companies are working on ways to grow even as one of their largest markets -- the transport segment -- is moving away from fossil fuels.
Enterprise Products Partners (EPD 0.51%) seems to be particularly well placed to continue growing amid the electric vehicle (EV) boom. Let's discuss why.
Enterprise Products Partners has a long history of financial discipline, which allowed the company to grow and expand its operations steadily. The company has a vast and diversified asset base today. Management's rich expertise helped Enterprise Products sail through challenging times while delivering value to its unitholders.
As the chart above shows, Enterprise Products Partners has increased its distribution, or dividends that master limited partnerships (MLPs) pay, for 23 years. During this period, the company returned $43 billion to its unitholders via distributions and unit buybacks. Importantly, Enterprise Products' distributable cash flow was more than the distributions it paid each year for 22 years in a row, with a temporary exception in 2003. That means the company paid its distribution from the cash it generated from operations and not from borrowed money.
In response to energy market conditions, Enterprise Products Partners moved to self-funding its capital needs rather than issuing units to raise funds as is the general practice for MLPs. This is reflected in the steady number of shares outstanding for roughly the last five years in the chart below.
Enterprise Products' performance looks solid whichever way you slice it. As the above graph shows, Enterprise Products' cash from operations and free cash flow -- two of the more commonly used metrics for analyzing performance -- have also risen steadily over the years.
Finally, Enterprise Products Partners' discipline is reflected in its financial debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio. The ratio tells how many years it will take a company to repay its debt using EBITDA, assuming both are held constant. A lower ratio is considered better. As shown in the chart above, Enterprise Products' debt-to-EBITDA ratio has largely been below 4.5, which is considered conservative.
Why this energy company is set to grow
There are some key reasons why Enterprise Products Partners looks well positioned to continue growing. As discussed above, the first reason is the company's disciplined and experienced management, and its extensive asset base. These help Enterprise Products identify opportunities and ways to grow irrespective of market conditions.
The second reason is Enterprise Products' investments to fuel growth. In 2021, it placed $1.5 billion of growth projects in service. In February, the company acquired Navitas Midstream Partners for $3.2 billion. These investments again highlight Enterprise Products Partners' ability to find growth opportunities and employ its balance-sheet strength to invest in them.
The petrochemicals industry is expected to be the biggest driver of oil-demand growth in the coming decades. In 2021, Enterprise Products earned two-thirds of its gross operating income from its NGL (natural gas liquid) pipelines, petrochemicals, and refined products businesses. NGLs primarily serve as feedstock for the petrochemicals industry for production of plastics, paints, chemicals, and a variety of other products with numerous end uses. So, a substantial chunk of Enterprise Products' business isn't dependent on transport fuels, setting it up to thrive even if electric vehicles lead to a reduction of gasoline demand.
Finally, though Enterprise Products is finding ample growth opportunities in its current businesses , it is assessing opportunities in the clean energy segment, too. The company is focusing primarily on carbon capture and storage, hydrogen, low carbon fuels, and plastics recycling opportunities. With the kind of track record that Enterprise Products has, it is safe to assume that the company will invest in projects that will generate the maximum value for its unitholders.