Partners for business products (NYSE:EPD) is as reliable as it gets. The Master Limited Partnership (MLP) has paid cash distributions to its unit holders each time single quarter since the initial public offering (IPO) 26 years ago. It recently expanded this range by indicating the final distribution payment. Although the MLP did not increase its payout this quarter, the current level is 5% higher than the same period last year thanks to steady increases in benefits. It has increased its distribution payment twice this year and every year since going public.
The MLP should have no trouble keep putting cash into the pockets of its investors every quarter. Therefore, income investors can count on the return distribution of roughly 7%.
Built to be reliable
Enterprise Products Partners operates a diversified platform of energy midstream companies. Most of it assets generate predictable, fee-based cash flow, supported by long-term contracts or government-regulated fee structures. It makes money as volumes flow through the various midstream assets. Over the past twelve months, the MLP generated $8.4 billion in adjusted cash flow from operations.
The pipeline company is very conservative in the way it allocates its cash flow. Over the past year, the company paid $4.4 billion in cash distributions, about 52% of its adjusted cash flow. That allowed it to keep about $4 billion. It used that money to buy back units ($200 million) and fund most of its investing activities ($4.1 billion), helping it maintain its fortress-like balance sheet.
Enterprise Products Partners has set the standard for balance sheet strength in the midstream sector, where it ranks highest creditworthiness (A-/A3). It has that too a very low leverage ratio (3.0 times) and primarily uses low-cost, long-term, fixed-rate debt to finance its operations. That first-class balance sheet gives it enormous financial flexibility.
The MLPs combination of A stable cash flow and a conservative financial profile put it in one strong position to continue paying for his lucrative distribution.
Room for growth
Enterprise Products Partners’ primary financial objective is to increase cash flow per unit. It does this in several ways, most notably by investing in midstream energy infrastructure at attractive returns. The MLP uses its financial flexibility to build and expand midstream infrastructure assets and acquire assets and midstream platforms.
The MLP recently agreed to acquire Pinon Midstream for $950 million in cash. The deal was highly strategic and contributed to the company’s 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 with an excellent access point to the eastern flank of the Delaware Basin so we can expand our natural gas processing footprint.
Meanwhile, the acquisition will add $0.03 per share to distributable cash flow in the first full year. There are additional benefits associated with commercial and operational synergies and a built-in ability to expand Pinon’s processing 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’ capabilities al extensive backlog of commercially secured important projects. The MLP currently has $6.7 billion worth of projects that it expects to be commissioned by the end of 2026. They support future cash flow growth and capital returns for investors.
The MLP has many other projects in development, including a potential one big offshore oil export terminal project (SPOT). In the meantime, the company has sufficient financial capacity to finance new expansion projects and continue to make acquisitions. Future investments to expand the midstream footprint would enhance and expand its growth profile and ability to increase distribution.
A reliable income investment
Enterprise Products Partners goes further to steadily generate income for its investors. The MLP should be able to increase its payout by a healthy percentage every year for the foreseeable future, given its financial strength and visible growth prospects. That makes it a great one income investment to hold for the long term for those who feel comfortable owning an MLP (which gives investors a Schedule K-1 federal tax form every year).
Should you invest $1,000 in Enterprise Products Partners now?
Before purchasing shares in Enterprise Products Partners, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Enterprise Products Partners wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $752,838!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns September 30, 2024
Matt DiLallo holds positions at Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
This Dividend Stock With a 7% Yield Continues to Put Cash in the Pockets of Its Investors Originally published by The Motley Fool
