Enable Midstream Partners LP: A 10.4% Yield Investors Can Count On
Looking to Earn a Double-Digit Yield? Read This
Today’s chart highlights a little-known stock with a big payout: Enable Midstream Partners LP (NYSE:ENBL).
Headquartered in Oklahoma City, Enable Midstream Partners is a master limited partnership (MLP) that owns, operates, and develops strategically located natural gas and crude oil infrastructure assets.
Compared to the big-name energy stocks that often make headlines in financial media, ENBL is a relatively undiscovered ticker. However, the partnership does have a solid presence in the midstream energy business.
According to its latest investor presentation, the partnership’s infrastructure asset portfolio consisted of about 7,800 miles of interstate pipelines, about 2,300 miles of intrastate pipelines, 13,900 miles of gathering pipelines, 84.5 billion cubic feet of natural gas storage capacity, and 2.6 billion cubic feet of processing capacity per day. (Source: “Investor Highlights August 2019,” Enable Midstream Partners LP, last accessed September 23, 2019.)
Now, as I said, this is a little-known stock with a big payout. In August, the partnership announced a quarterly cash distribution of more than $0.33 per unit, representing a four percent increase from its prior payment. The increased cash distribution was paid on August 27, 2019.
Since Enable Midstream Partners stock trades at $12.76 per unit, its latest cash distribution translates to an annual yield of 10.4%.
Based on what has happened to the energy industry in the last several years, you probably think that this is just another beaten-down stock with a staggeringly high yield.
And at first glance, that seems to be the case. ENBL stock plunged in the summer of 2014, the same time that oil and gas prices crashed. And while the stock has bounced back more recently, it’s still trading at about half of where it was in August 2014.
In other words, the massive drop in the Enable Midstream Partners stock price was a factor behind the stock’s jaw-dropping yield.
Still, ENBL differs from other beaten-down energy stocks for a very simple reason: the partnership’s business has been growing.
Why ENBL Stock Is Special
You see, while Enable Midstream Partners LP comes from the energy industry, around 96% of its gross margin is either fee-based or hedged. As a result, the partnership can run a relatively stable business despite commodity price volatility.
Consider this: in 2015, Enable Midstream generated adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of $801.0 million. Since then, the number has increased every single year, to almost $1.1 billion in 2018.
For 2019, management expects ENBL’s adjusted EBITDA to come in between $1.09 billion and $1.18 billion, which would mark another increase year-over-year. (Source: “Third Quarter 2019 Investor Presentation,” Enable Midstream Partners LP, last accessed September 23, 2019.)
Note that, if Enable Midstream Partners realizes the midpoint of that guidance range and earns about $1.14 billion in adjusted EBITDA per share this year, it would achieve a compound annual growth rate (CAGR) of 9.1% from 2015 to 2019.
Looking around, very few energy stocks can churn out such a steadily increasing stream of adjusted EBITDA these days.
Adjusted EBITDA of Enable Midstream Partners LP (in Millions)
Since Enable Midstream is an MLP, one of the key performance metrics is distributable cash flow. We know that MLPs can be some of the highest yielders in the stock market. But in order to afford those payouts, they need to generate enough distributable cash flow.
The good news is, Enable Midstream’s distributable cash flow has been growing alongside its business.
In 2015, the partnership’s distributable cash flow totaled $538.0 million. This year, it is on track to generate distributable cash flow of $740.0 to $810.0 million. At the midpoint, that would translate to a compound annual growth rate of 9.6%. (Source: “Third Quarter 2019 Investor Presentation,” Enable Midstream Partners LP, op. cit.)
Thanks to the partnership’s solid cash-flow-generating ability, the partnership has no problem covering its oversized payouts.
In 2018, Enable Midstream Partners generated $760.0 million in distributable cash flow while declaring $552.0 million in cash distributions to unitholders. Therefore, the partnership’s distributable cash flow exceeded its actual cash distributions by $208.0 million, resulting in a comfortable distribution coverage ratio of almost 1.4 times. (Source: “Enable Midstream Announces Fourth Quarter and Full-Year 2018 Financial and Operating Results,” Enable Midstream Partners LP, February 19, 2019.)
Fast forward to this year and things are still solid at this high-yield MLP.
In the first six months of 2019, Enable Midstream generated $405.0 million in distributable cash flow. Its actual cash distributions, on the other hand, totaled $282.0 million during this period. That translated to a distribution coverage ratio of 1.4 times, which, once again, left a wide margin of safety. (Source: “Enable Midstream Announces Second Quarter 2019 Financial and Operating Results, Increases Quarterly Common Unit Distribution,” Enable Midstream Partners LP, August 6, 2019.)
In the company’s latest earnings release, management also reaffirmed their distribution coverage outlook target of 1.3 to 1.45 times for full-year 2019.
Last but certainly not least, this is a high-yield stock that takes its distributions very seriously. In particular, despite the downturn in the energy industry in the last several years, the partnership’s per-unit cash distribution has only been going up since its initial public offering (IPO) in 2014. (Source: “Distribution History,” Enable Midstream Partners LP, last accessed September 23, 2019.)
When asked about the sustainability of ENBL’s distribution policy during the company’s latest earnings conference call, President and Chief Executive Officer Rob Sailor said, “…we’ve always taken great pride in the fact that when we make a distribution announcement, we’re making covenant if you like, we need to continue to maintain that distribution.” (Source: “Enable Midstream Partners, LP (ENBL) CEO Rod Sailor on Q2 2019 Results – Earnings Call Transcript,” Seeking Alpha, August 6, 2019.)
With a durable business model, strong distribution coverage, and a recent payout increase, this 10.4% yielder looks like a solid opportunity for income-seeking investors.