Based on its market capitalization, Enterprise Products Partners is the largest energy infrastructure master limited partnership. A leader in pipelines and midstream energy operations, the MLP is also a favorite of numerous investment experts, including these five MoneyShow.com contributors.
Enterprise Products Partners is a prime example of a great MLP. It is a relative newcomer to the midstream MLP game, having been founding in 1968 and going public in mid-1998. Since then, it has grown to a $57 billion company with a yield of 6.4%, well over 3 times the yield of the S&P 500.
Enterprise Products Partners, simply put, is in the business of storing and moving gas and petroleum products. One of its major advantages is its location. Its network of pipelines and facilities comes very close to the Permian and Eagle Ford formations, which have — and will — see a majority of production growth in coming years.
About 70% of natural gas liquids (NGLs) growth is coming from these two formations. NGLs already account for 56% of its gross operating margin. Plus, it extends to the Northeast U.S. coast, which is a massive source of domestic demand. And while oil and condensates don’t account for such a large percentage of its business, the Permian Basin and Eagle Ford formations account for 80% of national growth.
All signs point to greater demand, thus more fees at potentially higher rates, for the foreseeable future. This solid geographic footprint provides the core of revenue for Enterprise Products Partners as it collects fees from producers as they move their products to storage, refineries and the consumer market.
What really stands out for the company’s future potential is the focus on expanding its export business. It is expanding its Enterprise Hydrocarbons Terminal through a recent 65-acre purchase. Located next to the Houston Ship Channel, it has seven deep water docks and two barge docks that enable imports and exports of raw and refined products.
Rising liquefied petroleum gas exports of this terminal have been strong tailwinds for the shares in recent years. From 2015 through 2017, the loading volumes rose from 299,000 bpd to 424,000 bpd. The site already has two docks and some infrastructure. What is important is that there is plenty of room to expand.
Plus, Enterprise Products Partners just tested its docks with a Very Large Crude Carrier (VLCC) ship. These behemoths move around 2 million barrels of oil. Only one privately owned crude terminal in the U.S. can handle them right now.
In total, this is a big push to expand terminal volume and entice shipping companies, all in an effort to capitalize on U.S. energy exports for decades to come. That naturally leads us to how they plan on paying for the infrastructure, and to its balance sheet.
This is a midstream MLP that is investing in the future while maintaining lucrative disbursements to its unit holders. Over the next year, we may not see the kind of growth that is technically possible in those payments, but we’re banking on collecting income while the MLP works on growth infrastructure.
Management is on track with those plans, has ample funds to do what should be done, and the long-term potential for its expansion of export capacity provides us exposure to a potentially massive increase in disbursements down the road. Plus, its debt structure is in a place where the company won’t be caught between rising interest rates and its commitments.
Enterprise Products Partners also offers a dividend reinvestment program. Current unit holders can reinvest all or a portion of distributions at a discount (currently set to 2.5%) without paying any service fees, brokerage trading fees or other charges. We’re adding the stock to our portfolio as a Buy below $32 per unit.
Anyone buying gasoline likely has noticed that energy prices are climbing and that reality has helped to fuel record financial results and a recent rise in the unit price of midstream energy producer Enterprise Products Partners.
The natural gas and crude oil pipeline partnership beat analysts’ expectations when it recently released first-quarter 2018 financial results and led forecasters to boost their stock price targets for the company. The stock price has jumped 9.74 percent so far this year and it should go higher amid forecasts of increased economic growth of close to 3 percent in 2018 that likely will spur additional demand.
Enterprise Products, which offers a current yield of 6.45 percent, generated a 23 percent jump in distributable cash flow (DCF) to reach a record $1.4 billion for the first quarter of 2018, providing 1.5 times coverage of its $0.4275 per unit distribution. That distribution excluded proceeds from asset sales and marked a 3 percent hike from the first quarter of 2017.
Two key developments at Enterprise Products Partners emerged during its first-quarter results that were highlighted in an April 30 research report by Stifel, Nicolaus & Company’s Selman Akyol, an energy industry analyst.
First, Enterprise Products Partners’ strong quarterly results propelled it significantly toward reaching its goal of self-funding its operations. Second, the company reported that “tight” pipeline, rail and fracking capacity is not expected until the second half of 2019. Both are positive for Enterprise, which retained $460 million in distributable cash flow during the first quarter.
For investors who want to profit from rising energy prices, Enterprise Products Partners and its pipelines offer a way to do so. When its current yield of 6.45 percent is factored into the decision, the appeal of receiving both capital appreciation and income is strong, indeed.
Enterprise Products Partners has a 90% payout ratio. It is now profitable for the year and has benefited from the recent rise in the oil price. Its 90% payout ratio is based on cash flow, and the company has increased its dividend for more than 50 consecutive quarters.
The company has benefited from higher oil prices and is profitable for the year. CEO Jim Teague is so bullish that he bought 44,600 units of the Houston-based master limited partnership in the past two months. That’s over $1 million in insider buying.
However, investors face two concerns with Enterprise. First is the impact of the new 25% tariffs on imported steel. An estimated 77% of the steel used in pipelines comes from overseas.
Second, the Federal Energy Regulatory Commission recently closed a long-standing tax loophole that allowed MLPs to claim an income tax allowance when reporting oil & gas pipeline costs.
Overall, Enterprise Products is now profitable for the year. At this price, the annual distribution yield is a generous 6.6%, and Enterprise Products Partners is famous for increasing its payout every quarter. This is a great opportunity for income seekers.
I search out the highest yield stocks I can find where my research shows that the dividends should be secure. I look for stability and consistency of revenue streams, access to capital to pay for growth projects and cash flow coverage of the dividend. Enterprise Products Partners is a high-yield income idea for conservative investors.
The company provides essential crude oil, natural gas, natural gas liquids pipelines and services. The company also provides petrochemical and refined products services. These are essential services, without which the U.S. energy sector could not function.
One sign of Enterprise Products’ financial strength is that the company has increased the distribution paid to investors for 55 consecutive quarters. Unlike most MLPs, Enterprise Products Partners retains a significant portion of free cash flow to reinvest in new projects.
For 2019 the company projects that 50% of capital spending will be covered by internally generated cash. The company is also investment grade and you can expect distributions to grow by a compounding 2.5% to 3% per year.
In late April, Enterprise Products Partners reported financial results for the first quarter of fiscal 2018. The partnership’s performance was very strong. Revenue grew by 27% and distributable cash flow increased by 23% in the quarter to a record $1.4 billion.
More importantly, Enterprise Products Partners reported a distribution coverage ratio of 1.5x in the quarter — one of the highest distribution coverage ratios we’ve ever seen from a master limited partnership. Because of its strong performance, Enterprise Products Partners noted that it does not expect to issue equity for the remainder of 2018 (other than its distribution reinvestment plan and employee unit purchase plan).
Despite the partnership’s remarkable performance, Enterprise Products Partners’ unit price remained essentially unchanged following the announcement. Prior to that, Enterprise Products Partners increased its quarterly distribution payment. The new quarterly payout of $0.4275 per common unit represents a 3.0% increase over the prior year’s period. Remarkably, Enterprise Products Partners has increased its distribution for 55 consecutive quarters.
The most important growth catalysts for Enterprise Products Partners are new projects. The partnership retained $867 million of distributable cash flow in 2017 and $458 million of distributable cash flow in the first quarter of 2018 alone. Enterprise Products Partners appears to have plenty of opportunities to deploy this internally generated cash.
We believe Enterprise Products Partners is the safest MLP in our broader investment universe. The partnership has an investment-grade BBB+ rating from Standard & Poor’s and a Baa1 rating from Moody’s. In addition, Enterprise Products Partners has a reputation for being exceptionally well managed. This year’s ranking marked the second consecutive year in which the partnership won the unanimous vote for the Institutional Investor All-America Executive Team for the MLP sector.