After a brutal 2022, the biggest fear for investors in stocks right now is a slowdown, or even a recession, in 2023. Yet, high-yield stocks that could not only generate steady passive income but even give you a dividend raise in a downturn should hugely help allay your fears.
Oil and gas giant Enterprise Products Partners (EPD 1.77%) is one such dividend whopper, yielding 7.9%, which has generated huge total returns for income investors over the years. Going by what lies ahead for the company in 2023, it could be the ultimate passive income stock to buy for 2023. Here's why.
This stock increased dividends even in the toughest years
Oil and gas stocks absolutely crushed the markets in 2022, with most companies making boatloads of money as crude oil prices surged. Enterprise Products Partners was no different -- it generated $5.7 billion in distributable cash flow (DCF) during the nine months that ended Sept. 30, nearly 16% year over year. DCF is an important liquidity metric that indicates whether a company is generating enough cash flow to support its dividends, or distribution, as it's called for master limited partnerships. Enterprise Products' DCF in those nine months comfortably covered its distribution by 1.8 times.
2022 was also the year when Enterprise Products increased its dividend for the 24th consecutive year, and it was a good 5.6% dividend raise over 2021.
Enterprise Products, in fact, has increased its dividend through the financial crisis of 2008, the oil price collapse of 2015-2016 and 2020, and the COVID-19 pandemic. The durability of the oil and gas giant's cash flows over the years is evident in the following chart.
Image source: Enterprise Products Partners Investor presentation.
This chart, however, doesn't reflect one striking number: The company covered its distribution by at least 1.2 times in each of the past 19 years.
The fuel to this oil stock's growth
NYSE: EPD
Key Data Points
So what's behind that stunning cash-flow growth? You see, Enterprise Products is a top player in the midstream oil and gas industry with expansive storage and processing facilities and a network of more than 50,000 miles of pipelines that transport crude oil, natural gas, natural gas liquids, petrochemicals, and refined products.
The company earns fees for all these services under long-term contracts and can therefore generate a steady and predictable stream of cash flows. To top that, Enterprise Products maintains a rock-solid balance sheet so it can expand operations and grab growth opportunities on the go. For example, it acquired Navitas Midstream in early 2022 for $3.25 billion in cash and currently has organic growth projects worth nearly $5.5 billion under construction.
Enterprise Products' financial fortitude and growth spending have delivered solid results so far, and I expect the trend to continue.
Image source: Enterprise Products Partners Investor presentation.
A value passive income stock
As its cash flows grow, so should dividends. Even if oil prices tumble in 2023 and Enterprise Products offers a modest low single-digit dividend raise, the stock's bumper yield of more than 7% could still earn you double-digit returns. That's a solid bet in what many believe will be a slow year for the economy.
Here's the best part: Enterprise Products generated record DCF per unit in the past 12 months but is trading at barely 7 times trailing DCF, much below its five-year average. This rare combination of value and income makes this high-yielding stock a no-brainer buy for passive income investors in 2023.
