Enterprise Products Partners (EPD 1.43%) is as reliable as they come. The master limited partnership (MLP) has paid cash distributions to its unitholders every single quarter since its initial public offering (IPO) 26 years ago. It most recently extended that streak by declaring its latest distribution payment. While the MLP didn't raise the payout this quarter, its current level is 5% higher than in the same period of last year thanks to its steady distribution increases. It has raised its distribution payment twice this year and every year since it came public.
The MLP should have no trouble continuing to put cash into its investors' pockets each quarter. Because of that, income investors can bank on its roughly 7%-yielding distribution.
NYSE: EPD
Key Data Points
Built to be reliable
Enterprise Products Partners operates a diversified platform of energy-midstream businesses. Most of its assets generate predictable fee-based cash flow backed by long-term contracts or government-regulated rate structures. It makes money as volumes flow through its various midstream assets. Over the past 12 months, the MLP has produced $8.4 billion of adjusted cash flow from operations.
The pipeline company is very conservative in how it allocates its cash flow. It has paid $4.4 billion of cash distributions over the past year, roughly 52% of its adjusted cash flow. That enabled it to retain about $4 billion. It used that money to repurchase units ($200 million) and fund most of its investment activities ($4.1 billion), allowing it to maintain its fortress-like balance sheet.
Enterprise Products Partners has set the standard for balance-sheet strength in the midstream sector where it has the highest credit rating (A-/A3). It also has a very low leverage ratio (3.0 times) and primarily uses low-cost, long-term, fixed-rate debt to fund its business. That top-notch balance sheet gives it tremendous financial flexibility.
The MLP's combination of stable cash flow and conservative financial profile puts it in a strong position to continue paying its lucrative distribution.
Room for growth
Enterprise Products Partners' top financial objective is to grow its cash flow per unit. It does that in various ways, notably by investing in midstream-energy infrastructure at attractive returns. The MLP uses its financial flexibility to build and expand midstream-infrastructure assets and buy assets and midstream platforms.
The MLP recently agreed to acquire Pinon Midstream for $950 million in cash. The deal was highly strategic and accretive to its cash flow and growth profile. Co-CEO Jim Teague commented on the transaction in a press release. He stated:
These assets accelerate our entry into this region by at least three or four years. These assets are highly complementary to our midstream energy system and provide us an excellent entry point into the eastern flank of the Delaware Basin for us to expand our natural gas processing footprint.
Meanwhile, the acquisition will add $0.03 per share to its distributable cash flow in the first full year. There's additional upside from commercial and operating synergies and an embedded opportunity to expand Pinon's treating capacity from 450 million cubic feet per day (450 MMcf/d) to 750 MMcf/d in the future.
That future expansion project would add to Enterprise Products Partners' already extensive backlog of commercially secured major projects. The MLP currently has $6.7 billion of projects it expects will enter service through the end of 2026. They support future cash-flow growth and capital returns to investors.
The MLP has many other projects under development, including a potentially large offshore oil export terminal project (SPOT). Meanwhile, it has ample financial capacity to fund new expansion projects and continue to make accretive acquisitions. Future investments to expand its midstream footprint would enhance and extend its growth profile and ability to increase its distribution.
A reliable income investment
Enterprise Products Partners continues to steadily provide income to its investors. The MLP should be able to increase its payout by a healthy rate each year for the foreseeable future, given its financial strength and visible growth prospects. That makes it a great income investment to hold for the long haul for those comfortable with owning an MLP (which sends investors a Schedule K-1 Federal Tax Form each year).
