Enterprise Products Partners (EPD +0.87%) has been an enriching investment over the years. The master limited partnership (MLP) has generated an average annual total return of 13.8% since it came public a quarter-century ago. That has trounced the S&P 500's 7.5% average annual total return during that period.
The MLP's big-time distribution has been a major contributor to its market-crushing total returns over the years. At 7.5% these days, it's significantly above average (the S&P 500 currently yields 1.6%).
However, that big-time payout is only part of the total return. The midstream giant takes a balanced approach to growing its total value for investors by wisely allocating capital toward initiatives that will make them richer over the long term.
NYSE: EPD
Key Data Points
A cash-flow machine
Enterprise Products Partners is one of North America's largest, most diversified energy midstream companies. This business model generates lots of steady cash flow, giving it a tremendous amount of capital to allocate to create value for its investors.
A big part of the MLP's value proposition is distributing cash to investors. It has paid $4.3 billion in distributions over the last 12 months, over half of its $8 billion in cash flow from operations. However, that still left the company with a substantial sum of cash to use to create additional value for investors.
It invested most of that money ($2.9 billion over the past year) into high-return expansion projects. In addition, the company opportunistically repurchases its common units. It bought back about $200 million in units over the past year. The MLP has also strengthened its already fortress-like balance sheet by repaying a net $300 million in debt over the past year.
In a class of its own
Enterprise Products Partners' repurchase program sets it apart from its midstream peers. The company recently analyzed the six largest energy midstream companies in North America. Co-CEO and CFO Randy Fowler discussed its findings on the third-quarter conference call: "Since 2019, EPD is one of only two companies to have actually reduced common unit/share count, and we are the only midstream company to reduce unit count over this time period without material asset sales." He noted that, overall, it reduced its outstanding common unit count by about 1%, matching its peer.
The company also stood out from its rivals with its ability to grow value per unit. Fowler stated, "We were also one of only three companies that grew distributable cash flow per unit by 15% or more. In fact, for this group of six midstream energy companies, EPD is the only company to have both reduced unit count and increased DCF per unit." Enterprise has stood out for its focus on maximizing the value of each unit through a balance of growth and repurchases.
More value creation ahead
Enterprise Products Partners believes its balanced approach will increase the partnership's value for investors over the long term. The bedrock of its capital allocation strategy remains its distribution, which it continues to increase. The MLP has boosted its payment by 5.3% over the past year and has now given investors a raise for 25 straight years.
Meanwhile, the company continues to invest in high-return expansion projects. It recently secured another $3.1 billion in projects, boosting its backlog to $6.8 billion. As a result, the company plans to increase its investment spending from $3 billion this year to within a range of $3 billion-$3.5 billion in 2024.
Higher investment spending won't affect the company's balanced capital allocation strategy. Fowler noted on the call:
We do not expect this level of capital investment to impact our distribution growth or our buyback activity in 2024. For 2024, we expect our buyback activity to be consistent with our history of approximately $200 million to $250 million a year. We are confident the returns generated by these organic capital investments in the heart of our NGL (natural gas liquids) value chain will support the continued growth in EPD's cash flow per unit and free cash flow, which will support future returns of capital through both distribution growth and buybacks.
Enterprise can do all that because it has such a healthy balance sheet. The company has a low leverage ratio, minimal upcoming debt maturities, and lots of liquidity. That allows it to capitalize on additional opportunities to grow value through expansion while returning substantial value to investors via distributions and repurchases.
The total package
Enterprise Products Partners focuses on growing value for its investors on a per-unit basis. That includes increasing its distribution per unit, growing its cash flow per unit, and reducing its total outstanding units. This balanced approach has enriched its investors over the years by fueling strong total returns. Since it has no plans to alter that strategy, it should continue to make its investors richer in the future.
