Enterprise Products Partners (EPD -0.63%) provides investors the best of both worlds. The master limited partnership (MLP) pays an attractive distribution that yields 7.7%. Meanwhile, it's growing its cash flow at a healthy rate. That growth was evident in the company's recently reported 2022 results.
The midstream company has lots more growth ahead. Because of that, it should have ample fuel to continue increasing its big-time payout in the future.
A big year for growth
Enterprise Products Partners generated $7.8 billion of distributable cash flow last year. That was 17% above what it produced in 2021. The MLP benefited from improving conditions in the energy market, organic expansion projects, and acquisitions.
The energy company produced enough cash to cover its distribution by a comfy 1.9 times last year, enabling it to retain $3.6 billion of cash. Enterprise Products used that money to fund $1.4 billion of organic growth projects. The MLP also spent $3.4 billion on acquisitions, including buying Navitas Midstream and purchasing 580 miles of pipelines and related assets.
The company also returned additional cash to investors last year. It grew its distribution by 5% -- its 24th straight year of increasing the payout -- and repurchased $250 million of its common units.
Even with all those investments and cash returns, Enterprise Products Partners ended 2022 with an excellent balance sheet. It finished with a leverage ratio of 2.9 times, below its 3.0 times target level.
That strong financial profile puts Enterprise's big distribution on a very solid foundation.
The fuel to continue growing
Enterprise Products Partners enters 2023 with a strong backlog of capital projects to continue fueling growth:
Data source: Enterprise Products Partners investor relations presentation.
As that slide shows, the company has $5.8 billion of major projects under construction. It expects to wrap up work on about $3.6 billion of projects this year, which will enter service and start generating incremental cash flow. The MLP anticipates spending up to $2.5 billion on these projects and others under development to continue fueling growth.
Enterprise has several potential projects in the pipeline. For example, it's working with Enbridge to build a large offshore oil export port off Texas' coast. It has already secured oil giant Chevron (CVX -0.83%) as an anchor shipper on that project. Meanwhile, it's working with Chevron and Occidental Petroleum (OXY -2.22%) on potential carbon capture and sequestration projects along the Gulf Coast.
Those opportunities would enable the company to repurpose underutilized pipelines to transport the captured greenhouse gas to hubs for permanent sequestration. And these projects would enable Chevron and Occidental to grow their traditional and lower-carbon businesses while supplying Enterprise with more cash flow to support its distribution.
The company's large capital project backlog should give the MLP all the fuel it needs to continue growing its distribution in the future. However, the company also has an excellent track record of making value-enhancing acquisitions.
The MLP spent about $3.2 billion to buy Navitas Midstream last year. Co-CEO Jim Teague noted in the fourth-quarter earnings release that that deal was "immediately accretive to Enterprise's cash flow per unit and has exceeded our expectations."
Teague also noted that the company "opportunistically purchased approximately 580 miles of pipeline and related assets that enables us to cost effectively optimize and expand our NGL and petrochemical pipeline systems on the Texas Gulf Coast." It spent about $160 million on that deal in the fourth quarter.
The company has ample financial capacity to continue making investments as opportunities arise. As noted, it ended last year with leverage below its targeted level. Meanwhile, it's on track to produce excess cash in 2023, even with the expected increase in capital spending.
An outstanding income producer
Enterprise is in an excellent position to continue increasing its big-time payout. The MLP has a large expansion project backlog, providing visible cash flow growth over the next few years. Meanwhile, it has the financial flexibility to continue making value-enhancing acquisitions. These factors make it an excellent option for those seeking to collect a steadily growing income stream.
