Enterprise Products Partners (EPD +1.12%) is a golden opportunity for income-seeking investors. The master limited partnership (MLP) offers a high-yielding distribution that it consistently increases. It recently declared its latest quarterly distribution, which was 5.4% above the year-ago level.
The midstream giant will make that next payment in mid-February to investors who own shares by the end of January. Investors who buy now can lock in a 7.7% yield at the payment rate. With more distribution growth likely, Enterprise is an excellent passive income investment to make these days.
NYSE: EPD
Key Data Points
A low-risk, high-yielding investment
Enterprise Products Partners has one of the lowest-risk business models in the energy sector. The company operates a diversified portfolio of midstream assets, including pipelines, processing plants, petrochemical facilities, storage terminals, and export sites. Those assets generate very stable cash flow backed by long-term contracts and government-regulated rate structures. The company has minimal exposure to commodity price volatility and has limited volume risk as it often gets paid fees even if customers don't use all of their contracted capacity.
Meanwhile, the company pays out a very conservative portion of its stable cash flow via the distribution. The company generated enough cash in the third quarter to cover its payout by a comfy 1.8 times. That enabled it to retain some money to help fund expansion projects.
Enterprise also has a top-tier balance sheet. It has one of the highest credit ratings in the midstream sector. It backs that with a low leverage ratio. At 3.1 times, leverage was below the company's 3.25-3.5 times target range. That gives it the additional financial flexibility to fund expansion projects and make opportunistic acquisitions.
With stable cash flow, a conservative payout ratio, and a strong balance sheet, Enterprise Products Partners' payout is on an exceptionally firm foundation.
More growth ahead
Enterprise's recent raise is the latest in a string of increases for the MLP throughout its history. The company has boosted its payout 75 times since its initial public offering in 1998, growing it for 24 straight years.
The MLP should have no problem continuing to increase its distribution in the future. Fueling that view is the company's visible growth prospects. Enterprise Products Partners currently has about $5.5 billion of organic expansion projects under construction. These commercially secured projects should enter service through 2025. They should supply the company with incremental cash flow as they come online, giving it more fuel to continue growing its payout.
Enterprise also has more projects in the pipeline. It recently received a record of decision from the U.S. Department of Transportation for its proposed Sea Port Oil Terminal (SPOT). That's a significant milestone, putting the company closer to moving forward with that key project, which would export oil for Chevron (CVX +0.00%) and other oil companies under long-term contracts.
The company is also working toward securing opportunities in the potentially enormous carbon capture and storage sector. It has signed agreements with Chevron and Occidental Petroleum on possible carbon dioxide transportation and sequestration solutions for the Gulf Coast area. It has an extensive pipeline system that it could repurpose for carbon dioxide to enhance and extend the cash flows of those assets.
Enterprise has the financial flexibility to pursue these and other projects. It can also make acquisitions as the right opportunity arises. These investments could give the company even more fuel to grow its distribution.
An exceptional income opportunity
Enterprise Products Partners offers investors a rock-solid passive income stream. Further, the company has the financial flexibility and growth project backlog to continue increasing its payout in the future. Those features make it an excellent investment to make right now if you're seeking to generate passive income.
