Enterprise Products Partners (EPD +1.91%) reached the milestone of 25 consecutive years of distribution increases last year. That's an elite record of growth, especially in the volatile energy sector.
The master limited partnership (MLP) has steadily grown its distribution by building and buying stable midstream assets that increase its cash flow. The company recently agreed to make $400 million in acquisitions. Those deals will give it even more fuel to grow its 7.5%-yielding distribution in the future.
NYSE: EPD
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Buying more income
Enterprise Products Partners recently signed a series of agreements with fellow MLP Western Midstream Partners (WES +1.06%) to acquire additional interests in some of its midstream assets. It's acquiring:
- Western's 20% interest in Whitethorn Pipeline Company. It owns the 620,000 barrel-per-day Midland-to-Sealy portion of the Midland-to-ECHO 1 crude oil pipeline. The deal gives Enterprise 100% ownership of Whitethorn.
- Western's 25% stake in Enterprise EF78, which owns natural gas liquids (NGL) fractionators 7 and 8 in Mont Belvieu, Texas. Enterprise now owns 100% of EF78.
- Western's 15% interest in the Panola Pipeline Company. It owns a 253-mile pipeline that transports NGLs from natural gas processing plants in East Texas to several destinations, including Enterprise's NGL fractionation complex in Chambers County, Texas. Enterprise will own 70% of Panola upon closing the transaction.
The MLP paid $375 million for the interests in Whitethorn and EF78, which have already closed. It has agreed to pay $25 million for the interest in Panola, which should close in 45 days. Enterprise is funding the acquisitions with cash on hand and short-term borrowings.
"We are pleased to complete these transactions to consolidate ownership in these midstream assets," stated co-CEO Jim Teague in the press release announcing the first two acquisitions. He further commented: "The pipeline asset serves the prolific Permian Basin, and the fractionation assets are integral to our NGL system. These transactions are immediately accretive to Enterprise's distributable cash flow per unit." The incremental cash flow per share will give the MLP more money to support its growing distribution in the future.
Meanwhile, the deal enables Western Midstream to cash in on some noncore assets. By simplifying its portfolio and strengthening its balance sheet, the MLP will become an even more appealing acquisition target. The company's parent, Occidental Petroleum, is reportedly seeking to sell its nearly 50% stake in the MLP.
NYSE: WES
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More fuel in the pipeline
Acquisitions are only part of Enterprise Products Partners' growth story. The MLP also has a long history of investing in organic expansion projects to grow its cash flow. The company currently has $6.8 billion of approved major projects under construction. These projects include new gas processing plants, another NGL pipeline, its 14th fractionator, and additional export capacity.
The company expects to invest $3.25 billion to $3.75 billion on projects this year ($3.25 billion of which it has already approved and up to another $500 million currently under development). Meanwhile, it anticipates investing $3 billion in approved capital projects next year. Its current project slate should enter service through the first half of 2026. That gives it lots of visibility into future cash flow and distribution growth.
The MLP has several additional projects under development, ranging from smaller natural gas gathering expansions to larger-scale projects like its SPOT offshore export terminal and carbon capture and sequestration opportunities. The company's ability to sanction additional expansion projects would add more visibility to its long-term cash flow growth profile, while giving it more fuel to increase its distribution in the future.
A well-oiled income-producing machine
Enterprise Products Partners has a long history of building and buying income-producing midstream assets. Its ability to grow its portfolio has enabled it to steadily increase its high-yielding distribution. With $400 million of additional acquisitions secured and $6.8 billion of expansion projects underway, the MLP should have plenty of fuel to continue growing its payout in the future. That makes it a great investment for those seeking a steadily rising income stream.
