There are a lot of factors that investors need to consider when looking at a dividend stock. Yield is frankly just one small piece of the puzzle, even though many on Wall Street quickly get enamored of big dividend payments. That said, Enterprise Products Partners' (EPD -0.77%) gigantic 7.9% yield not only looks sustainable, but the underlying distribution supporting it also seems likely to grow. Here's what you need to know, in tables and charts.

A long history of growth

Enterprise Products Partners is a master limited partnership (MLP), a business structure that is complex in some ways but specifically designed to pass income on to unitholders. So the big yield makes sense. Still, it's important to note that Enterprise has shown an incredible commitment to the distribution over time, with 24 consecutive years of distribution growth, with the quarterly dividend now $0.475.

EPD Dividend Chart

EPD dividend; data by YCharts.

Distributions are clearly a key focus, and that should provide investors with a little extra confidence in the income stream the company generates. That said, it's also worth noting that there's a huge amount of inside ownership here, at roughly 33%.

Name

Title

Percent Ownership

Randa Duncan Williams

Director and chairman of the board

32.3%

All other directors

 

0.3%

 

Total insider ownership

32.6%

Data source: Enterprise Product Partners proxy statement October 2022

The insider ownership is largely related to a single person. While there are some negatives on the control side of the equation in a situation like this, a distribution cut would also mean a huge income decline for the chairman of the board. So income investors can take some comfort that the board is tightly aligned with their interests when it comes to the sanctity of the distribution.

A strong balance sheet and coverage

Just having a board that's committed to sustaining the distribution isn't always enough. A strong balance sheet and reasonable payments are important, too. Enterprise Products Partners also stands out on each of these points.

For example, the MLP's ratio of financial debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) is, and has long been, toward the low end compared to those of its peers. 

EPD Financial Debt to EBITDA (TTM) Chart

EPD financial debt to EBITDA (TTM); data by YCharts. TTM = trailing 12 months.

As for distribution coverage, Enterprise's third-quarter coverage ratio was a robust 1.8. That leaves a huge amount of room for adversity before the distribution would be at risk. Notably, distribution coverage has been increasing in recent years, meaning that the safety of the payout is getting better over time.

Year

2017

2018

2019

2020

2021

2022 (9 months)

Distribution coverage ratio

1.2 

1.5

1.7

1.6

1.7

1.8

Data source: Enterprise Products Partners. 

Part of the above trend was intentional. Enterprise has been looking to self-fund more of its own growth. That avoids the need to take on extra leverage or to issue units that might end up diluting current unitholders. Both are good things. And with coverage so strong, it seems highly likely that the historical trend of rising distribution growth will continue without much trouble.

Attractive for all types

Given the size of the distribution and the financial strength backing it, income investors across the risk spectrum should feel comfortable with Enterprise's distribution. That said, the distribution growth here is in the low single digits over time, so the big yield is going to make up the vast majority of your total return. But if the goal is maximizing your passive income stream, this MLP should be on your short list.