For many investors, the first thing that will attract them to Enterprise Products Partners (EPD 0.45%) is the generous 7.4% yield. Given that the S&P 500 index is only yielding around 1.5% today, that is, indeed, a very attractive number. But there's so much more to like about Enterprise. Here are a few graphs and tables to highlight the midstream master limited partnership's (MLP's) best selling points.
1. Slow but steady wins the race
A giant yield is only attractive if it's sustainable over the long term. For example, Pioneer Natural Resources (PXD -2.28%), another company that operates in the energy sector, has an even higher yield of 11%. But Pioneer has a variable dividend policy, so the yield will rise and fall along with the financial results of the energy driller. In other words, volatile commodity prices will play a dominant role in the dividends that investors collect.
PXD EBITDA (Quarterly) data by YCharts.
Enterprise is different. It operates in the midstream sector, owning a massive portfolio of pipelines, storage, transportation, and processing assets. It largely charges fees for the use of its assets. That results in fairly steady cash flows over time. And that is what helps support the distribution in good markets and bad. As the chart above shows, the MLP's earnings before interest, taxes, depreciation, and amortization (EBITDA) results aren't exactly a smooth line, but the ups and downs are far more subdued than the results from Pioneer. Boring can be good when it comes to dividends.
2. A long history of distribution increases
That stability is what has backed a very long uptrend in Enterprise's annual distributions. The streak of annual increases is currently at 24 years. That said, the MLP has increased the distribution two times so far in 2023 (once in the first quarter and a second time in the third), so it is well on its way to reaching 25 years.
EPD Dividend Per Share (Quarterly) data by YCharts.
As the chart shows, the distribution has a pleasing upward slope to it. But some distribution numbers will add value here. The first distribution was in Q4 1998, shortly after the partnership's initial public offering (IPO), and totaled $0.08 per unit (adjusted for two stock splits). The most recent distribution was $0.50. That's a big difference, especially when you consider the boring nature of Enterprise's business model.
3. A strong foundation for financial success
Notably, Enterprise has an investment-grade-rated balance sheet. A dividend is only as strong as a company's financial ability to support it. If Enterprise were heavily leveraged, that support would be weak even with a reliable fee-based business. But this MLP has long focused on operating in a conservative fiscal manner.
EPD Financial Debt to EBITDA (TTM) data by YCharts.
As the chart above shows, Enterprise has the lowest debt-to-EBITDA ratio among its closest peers. That's not just a five-year trend, however, because Enterprise has been near the bottom for most of its public life. Basically, the partnership is designed to create a reliable income stream for investors.
4. A margin of safety for distributions
Another way to look at this that is more specific to Enterprise is to examine how well its distributable cash flow covers its distribution. There's been a shift in the industry that's important to note. At one point, 1.2 times distributable cash-flow coverage was considered strong. Now the number is higher, and the table below will show the change taking place at Enterprise as its coverage rose to the current, very strong level of 1.9 times.
|
'12 |
'13 |
'14 |
'15 |
'16 |
'17 |
'18 |
'19 |
'20 |
'21 |
'22 |
|
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Distribution |
1.4 |
1.5 |
1.4 |
1.3 |
1.2 |
1.2 |
1.5 |
1.7 |
1.6 |
1.7 |
1.9 |
Data source: Enterprise Products Partners.
Basically, Enterprise is more prepared for adversity today than it has been in over a decade. So that big 7.4% distribution yield looks particularly safe.
A very lovable income option
If you are a dividend investor looking for a long-term holding, Enterprise should be on your short list. It has a reliable business, a strong financial foundation, plenty of cash flow to cover its current payout, and a long history of supporting the distribution in good markets and bad. But there's one more thing to like -- the yield happens to be toward the high-end of the MLP's historical yield range. In other words, this no-brainer dividend stock also looks like it is on sale today.
