Enterprise Products Partners (EPD -0.73%) has an amazing track record. The energy master limited partnership (MLP) has increased its cash distribution to investors for 23 straight years. That growth streak isn't likely to end anytime soon, which was one of the important takeaways from the company's first-quarter results.
Here's a closer look at its financial results and outlook, which support the view that Enterprise Products Partners can continue delivering sustainable income growth.
Another excellent quarter
Enterprise Products Partners generated record distributable cash flow in the first quarter. At more than $1.8 billion, it was $100 million, or 5.8%, higher than the year-ago period. That provided the MLP with the cash to cover its 7.3%-yielding distribution by a comfortable 1.8 times. Meanwhile, that rising cash flow has enabled Enterprise to increase its distribution by 3.3% over the past year. Thanks to its strong coverage ratio, the company retained $814 million in cash for other purposes.
Several factors drove the energy company's strong quarter. It benefited from strong results across its petrochemical and refined products services segments, higher natural gas processing margins, and the impact of its recent Navitas Midstream acquisition. In addition, it didn't face the same headwinds that impacted its year-ago results, which included two major winter storms and downtime resulting from planned maintenance at two of its facilities.
Enterprise fully funded its distribution and $275 million of growth projects with cash to spare. That allowed the company to pay down some of the money it borrowed to finance its Navitas Midstream acquisition. This debt reduction enabled the MLP to end the quarter with a strong balance sheet. It had a leverage ratio of 3.4 times debt to earnings before interest, taxes, depreciation, and amortization (EBITDA), well within its 3.25 to 3.75 times target range.
The fuel to continue growing
Enterprise Products Partners expects its cash flow to continue growing in the coming years. It's benefiting from improving oil and gas prices, which is driving higher volumes across its midstream systems. That's providing the company with new expansion opportunities. It currently has $4.6 billion of organic expansion projects under construction that it should complete by 2025, including seven that it has added to its backlog this year. These include new natural gas processing plants in the Permian Basin, expansions of two of its export terminals, and the repurposing of some underutilized pipelines to support a new refined products system in the southwest.
This year, the company expects to invest $1.5 billion in growth projects. That budget includes more than $1.3 billion in projects it has already approved. Meanwhile, it anticipates maintaining that investment level next year, supported by roughly $1 billion of currently approved projects. The MLP has several more projects under development, which could boost its capital spending up to its budgeted level.
It's pursuing several potential new investments, including an oil export terminal along the U.S. Gulf Coast and a carbon dioxide transportation and sequestration solution for the Gulf Coast. Enterprise Products Partners is still awaiting final government approval on the oil export project. Meanwhile, it signed a letter of intent to work with a subsidiary of Occidental Petroleum (OXY -0.02%) on the carbon dioxide project. Enterprise would develop the transportation network utilizing new and existing pipelines, while the Occidental business unit would develop sequestration hubs. That project would help lower the carbon intensity of the region, reducing its impact on the climate.
Enterprise Products Partners has increasingly visible growth over the next several years thanks to its growing secured project backlog and new opportunities coming down the pipeline. It has ample financial flexibility to finance its expansion, given its sizable post-distribution cash flow, strong balance sheet, and joint venture partners. It also has the financial flexibility to continue making acquisitions as compelling opportunities arise. These factors suggest that the MLP should have the fuel to continue increasing its distribution to investors for the next several years.
A great income stock to hold for the long haul
Enterprise Products Partners has an excellent track record of growing its distribution. Given the improving conditions in the energy market, its growing expansion project backlog, and strong financial profile, this MLP should be able to continue steadily increasing its payout in the coming years. That makes it a great option for investors seeking to collect some passive income.