Why Units of Enterprise Products Partners Soared More Than 10% in the First Half of 2022

What happened

Units of Enterprise Products Partners (EPD -0.31%) gained about 11% in the first half of 2022, according to data provided by S&P Global Market Intelligence. That was a strong showing by the master limited partnership (MLP), especially considering that the S&P 500 tumbled more than 20% during that period.

Here's a look at the catalysts that helped fuel the MLP's strong first-half performance. 

So what

Enterprise Products Partners posted strong financial results in early 2022, partly thanks to surging oil prices. The MLP generated $1.8 billion in distributable cash flow during the first quarter, a roughly 6% improvement from the year-ago period. That was enough money to cover the company's high-yielding distribution payment by 1.8 times in the period. Because of that, the company retained a substantial amount of cash to support its continued expansion.

Meanwhile, Enterprise added a new growth driver by acquiring Navitas Midstream Partners for $3.25 billion. The transaction gives the company a foothold position in the oil-rich Midland Basin. Navitas Midstream's gathering and processing assets will generate steady cash flow for Enterprise, while providing it with expansion opportunities as customers grow their production from the region.

The pipeline company also made progress in adding to its future growth prospects. One potentially large growth opportunity that it's working on is carbon capture and storage. Enterprise signed a letter of intent with a subsidiary of oil giant Occidental Petroleum (OXY 0.58%) on a potential carbon dioxide transportation and sequestration solution for the Texas Gulf Coast.

Enterprise would develop the transportation network using new and existing pipelines, while Occidental would develop sequestration hubs. Occidental believes carbon capture could be a $3 trillion to $5 trillion global market. If that thesis plays out, it could be a significant long-term growth driver for Enterprise.

Now what

Enterprise Products Partners' continued growth enables it to pay out higher distributions. The MLP declared its latest payment in early July, which was 5.6% above its prior-year level. That increase was the company's 74th since its initial public offering in 1998, while 2022 will be its 24th consecutive year of increasing the payout.

This increase helped push the MLP's distribution yield above 7.5%. That payout should continue rising, fueled by the Navitas deal and its growing pipeline of expansion projects. That makes Enterprise Products Partners an excellent option for investors seeking to collect passive income.