Enterprise Products Partners (EPD 1.64%), a midstream company that operates more than 50,000 miles of pipeline across 27 states, is often considered a reliable income stock. Over the past five years, its stock has rallied 68% and generated a total return of 141% after reinvesting distributions. Let's see if it will keep rising over the next five years.
How fast is Enterprise Products growing?
Enterprise Products, like other pipeline operators, charges upstream extraction companies and downstream refining companies to deliver natural gas, natural gas liquids (NGLs), crude oil, and other refined products through its pipes. That "toll road" model is resistant to volatile commodity price swings, since it merely needs those resources to keep flowing to generate stable profits.
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Enterprise Products is a master limited partnership (MLP) that blends a return of capital with its own income to pay attractive, tax-efficient distributions instead of traditional dividends. It currently pays a high forward yield of 5.9%, and it's raised its payout for 28 consecutive years.
Midstream MLPs must comfortably cover their annual distributions with their distributable cash flow (DCF). From 2020 to 2024, Enterprise Products' DCF rose from $6.41 billion to $7.84 billion, while its distribution coverage ratio expanded from 1.6x to 1.7x. Its earnings per unit (EPU) also increased from $1.71 in 2020 to $2.69 in 2024.
That stable growth was driven by the expansion of its pipelines across the Permian Basin, the Neches River, Morgan's Point, and other locations. It also continues to acquire smaller pipeline operators, but it's not expanding as aggressively as its larger rival, Energy Transfer Partners (ET 1.01%). That's why Enterprise Products has significantly less debt than Energy Transfer Partners.
NYSE: EPD
Key Data Points
Where will Enterprise Products' stock be in five years?
From 2024 to 2028, analysts expect Enterprise Products' EPU to grow at a 5.6% CAGR to $3.35. If it maintains that growth rate through 2031, its EPU will rise to $3.94. If it's still trading at 13 times its current-year EPU, its stock price could increase about 40% to $52 over the next five years. It should also continue to raise its annual distributions.
Enterprise Products won't generate any life-changing gains, but it should remain a stable, evergreen play in this frothy and unpredictable market. It should also become more appealing to income-oriented investors if interest rates continue to decline through the end of the decade.
