What happened
Shares of oil and natural gas pipeline and processing company Enterprise Products Partners (EPD 1.41%) gained 9.8% in 2022 -- impressive compared to the 19.4% decline for the S&P 500. But when you factor in its sizable distributions -- the special type of dividend paid by partnerships -- investors who held onto Enterprise stock for the entire year actually generated total returns of 18.2%.
So what
I can't say that the midstream company did nothing over the past year, but it certainly didn't make any needle-moving changes one could point to as catalysts for its stock price gain. It made a $3.25 billion acquisition of Navitas Midstream early in 2022; announced some new future projects to expand its footprint; and its earnings each quarter showed the typical progress investors have come to expect from this company.
It's perhaps simplest to put it this way: Enterprise Products Partners continued to deliver shareholder value, and investors recognized that about it during a period when many other businesses could not say the same.
Another thing helping Enterprise Products Partners deliver such a strong result for investors was its sizable payout. At the start of 2022, Enterprise's distribution yield was 8%. Since the total return of a stock in any given year is (reinvested) dividends paid plus stock price appreciation, a high yield like that can do a lot of the heavy lifting for a stock.
Now what
Whether or not Enterprise Products Partners will produce another market-beating performance in 2023 is anyone's guess. Year-to-year changes in its stock price can vary depending on which side of the fear and greed spectrum the market is tending toward at any given time.
It's fair to say, though, that Enterprise will continue to do the things it has done for years to generate shareholder value. Its management team has a great track record of maintaining a resilient business by using contracts with customers to ensure predictable revenue, preserving the integrity of its balance sheet with low leverage, and being prudent underwriters of new capital spending.
These aren't qualities that will necessarily lead to a market-beating performance in any given year, or even over several years. In fact, shares of Enterprise Products Partners underperformed the S&P 500 on a total return basis over the past decade. Over the very long term, though, it has rewarded investors incredibly well.
EPD Total Return Level data by YCharts.
Today, shares still look reasonably valued. As of this writing, Enterprise Products Partners has a distribution yield of 7.88%. Even if that payout represented a large portion of 2023's total return for investors, this would still be a good year.
