Enterprise Products Partners (EPD +0.62%) is trading for way less than $100 a share, so even a very modest investment can get you in the door of this midstream master limited partnership (MLP). The big reason to take the leap is the 6.3% distribution yield that you'll collect, which is multiples higher than the tiny 1.2% yield of the S&P 500 index.
The good news doesn't stop there. Here are a few more reasons why Enterprise is the best high-yield midstream investment for you right now.
What does Enterprise Products Partners do?
Enterprise owns a vast collection of energy infrastructure assets located across North America. Its portfolio includes pipelines, storage, processing, and transportation assets, all of which tend to produce reliable, fee-based cash flow.
The reason for that is pretty simple. The price of the commodities flowing through Enterprise's system is less important than the volume that's flowing through it. Demand for oil and natural gas and the products into which they get turned tend to remain strong, even when energy prices are low.
Image source: Getty Images.
The importance of volume is notable because, according to co-CEO Jim Teague, "Record 2024 financial performance was driven by record volumes across our midstream system." That record volume, meanwhile, came despite notable volatility in West Texas Intermediate (WTI) crude prices, a key U.S. oil benchmark.
Indeed, at one point, WTI was up around 20%, and at another, it was down nearly 10%. WTI ended the year roughly where it started. But none of that mattered for Enterprise, which simply collects fees for helping to move oil and natural gas around the world.
The consistency of Enterprise's business is highlighted by the fact that it has increased its distribution annually for 26 consecutive years. The distribution in 2024 was 5% higher than the distribution paid in 2023, which is a solid rate of growth. Meanwhile, distributable cash flow covered the distribution by 1.7x, leaving plenty of room for adversity before a distribution cut would be in the cards.
Enterprise is slated for slow and steady growth
That said, there's some interesting math to consider around the distribution. Given that Enterprise didn't use all of its distributable cash flow to pay the distribution, there was cash left over. In 2024 that "leftover" cash flow totaled $3.2 billion. Keep that number in the back of your mind.
NYSE: EPD
Key Data Points
Midstream companies own large assets that require a lot of money and time to build. The most direct way for a business like Enterprise to grow is to build new assets. According to Teague, "We currently have approximately $7.6 billion of major growth capital projects under construction. These projects will go into service over the next three years."
Over the next three years, Enterprise will need to pony up $7.6 billion, but using the 2024 "leftover" as a guide, the business is capable of generating around $3 billion a year to use however it would like. Even after paying for these growth investments, Enterprise should still have excess cash for things like acquisitions and unit buybacks.
Nothing is guaranteed on Wall Street, but it sure looks like Enterprise is well-positioned to grow in the years ahead. That, in turn, should allow the MLP to keep increasing its distribution. Buying Enterprise today will get you a big yield and a high probability of solid distribution growth.
There is one problem that investors need to understand. As noted previously, the distribution was upped 5% in 2024. That's not bad, given that it outpaces the historical rate of inflation growth. However, Enterprise isn't an investment that offers rapid income growth.
The distribution yield will very likely make up a large portion of your total return over time. If you're looking to maximize the income your portfolio generates, however, that probably won't bother you.
EPD Financial Debt to EBITDA (TTM) data by YCharts.
Why Enterprise and not some other midstream company?
There are other midstream companies you can buy, and some of them have higher yields. Some even have longer track records on the dividend growth front.
However, for conservative investors, Enterprise's strong distributable cash-flow coverage of 1.7x provides both a safety net for the distribution and the capital to support long-term growth. And that sits atop a highly conservative business that has long operated with industry-leading (meaning low) leverage metrics.
Big income, modest risk, and a solid opportunity for growth. That sounds like a winning combination for a conservative dividend investor. If you don't own Enterprise already, take the time for a deep dive right now.
