EPD Stock: 6.9%-Yielding Energy Play Up 20% YTD; Raises Dividend for 23 Straight Years

By John Whitefoot, BA | May 11, 2022

Why Enterprise Products Partners L.P. Is Compelling

Energy stocks tend to fluctuate in relation to where we are in the economic cycle. When we’re in a recession, the demand for oil and natural gas falls, and often, so do the prices of oil and gas stocks. Their dividends can also fluctuate. One oil and gas stock that has a history of providing investors with significant capital appreciation and rising high-yield dividends is Enterprise Products Partners L.P. (NYSE:EPD).

The partnership is a leading North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals.

Since going public in July 1998, through December 31, 2021, the Houston, TX-based company expanded its asset base from $715.0 million to $68.0 billion. That figure is expected to keep rising. The exceptional asset expansion is a result of organic growth opportunities and acquisitions. (Source: “Investor Deck: May 2022,” Enterprise Products Partners L.P., last accessed May 10, 2022.)

The partnership’s combined operations include:

50,000 miles of natural gas, NGL, crude oil, refined product, and petrochemical pipelines
260 million barrels of NGL, refined product, and crude oil storage capacity
14 billion cubic feet of natural gas storage capacity
23 natural gas processing plants
25 NGL and propylene fractionators

Enterprise Products Partners L.P. also has the following import/export terminals:

Houston Ship Channel, with seven deep-water ship docks
Beaumont, with five deep-water ship docks
Seaway Texas City and Freeport, with four deep-water ship docks
Morgan’s Point, with two deep-water ship docks

In February, the company announced that it had completed its $3.3-billion acquisition of Navitas Midstream Partners, LLC. The acquisition gives Enterprise Products a foothold in natural gas gathering, treating, and processing in the core of the Midland Basin of the Permian. (Source: “Enterprise Completes Acquisition of Navitas Midstream,” Enterprise Products Partners L.P., February 17, 2022.)

Navitas Midstream’s assets include approximately 1,750 miles of pipelines and over 1.0 billion cubic feet per day of cryogenic natural gas processing capacity. The system is anchored by long-term contracts and acreage dedications with a diverse group of more than 40 independent and publicly owned producers.

Growth Drivers

There are many growth drivers that should propel Enterprise Products Partners L.P. for decades. Market fundamentals pointed to tighter markets even before Russia invaded Ukraine, with energy supplies in Organisation for Economic Co-operation and Development (OECD) countries starting 2022 at a five-year low.

The current situation is characterized as follows:

No inventory buffer to prevent higher prices
Low diesel supply to support margins and refinery demand
“Gasoline season” has yet to start

Enterprise Products Partners L.P.’s management expects to see significant growth in commodity supply as the post‐COVID-19 demand for energy continues to recover around the globe.

To help it achieve its near-term goals, Enterprise Products has $4.6 billion in organic growth projects under constructions, including the following seven projects:

A natural gas processing plant in the Midland Basin
A natural gas processing plant in the Delaware Basin
The 12th NGL fractionator in Chambers County, TX
A 400 million cubic feet per day expansion of its Acadian Gas System
Expansion of its ethane marine export terminal
Expansion of its ethylene marine export terminal
Repurposing segments of the Chaparral and MAPL pipelines and new construction to form the Texas Western Products System to support the under-served refined product markets in West Texas, New Mexico, Colorado, and Utah

The long-term outlook for Enterprise Products Partners L.P. is bullish. U.S. net imports of crude and refined products since the shale revolution have grown from more than 10 million barrels per day of imports to a net surplus.

Russia’s unprovoked invasion of Ukraine has sparked demand in countries all over the world for oil and gas from politically stable countries like the U.S. As a result, American energy independence has become a geopolitical strength.

On top of that, the U.S. is responsible for virtually all global liquefied petroleum gas (LPG) export growth. Since the potential for the U.S. natural gas industry is massive, there’s an increased demand for export terminals.

Record Q1 Financial Results

For the first quarter ended March 31, 2022, Enterprise Products reported net income of $1.3 billion, or $0.59 per diluted share, compared to $1.3 billion, or $0.61 per diluted share, in the same prior-year period. (Source: “Enterprise Reports First Quarter 2022 Earnings,” Enterprise Products Partners L.P., May 2, 2022.)

The partnership’s distributable cash flow (DCF) in the first quarter of 2022 was a record $1.8 billion, or $0.465 per unit. In the first quarter of 2021, its DCF was $1.7 billion, or $0.45 per unit. Enterprise Products Partners L.P.’s DCF in the first quarter of 2022 provided 1.8 times coverage of Enterprise Products stock’s distribution.

The company retained $814.0 million of DCF during the first quarter of 2022. That money was used to fully fund $275.0 million of growth capital expenditures and partially repay borrowings that were used to finance its acquisition of Navitas Midstream Partners, LLC.

Enterprise Products Partners L.P.’s record first-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2.3 billion were fueled by its petrochemical and refined product services segment, higher natural gas processing margins, and gross operating margin attributable to the Navitas Midstream acquisition.

The partnership’s adjusted cash flow from operations (CFFO), which is the net cash flow provided by operating activities before the net effect of changes in operating accounts, was $2.0 billion in the first quarter of 2022, compared to $1.9 billion in the first quarter of 2021.

Enterprise Products Partners L.P.’s adjusted free cash flow (FCF) for full-year 2022 was $2.1 billion. After excluding $3.2 billion used for the acquisition of Navitas Midstream Partners, the company’s payout ratio of adjusted FCF for the year was 80%.

EPD Stock’s Price & Dividend Keep Rising

Thanks to strong cash generation, Enterprise Products Partners L.P. has been providing one of the safest high-yield dividends in the oil and gas industry.

In the first quarter of 2021, Enterprise paid a quarterly dividend of $0.45 per unit. In April 2022, the company’s board declared a quarterly dividend of $0.465 per unit, for a yield of 6.9%. This was the 23rd straight year in which Enterprise Products Partners L.P. increased its dividend. Over that period, the company’s dividend rose by a compound annual growth rate (CAGR) of seven percent.

It’s not just the company’s high-yield payout that makes dividend hogs happy. Enterprise Products stock has experienced significant long-term price growth. Over the last 20 years, with dividends reinvested, EPD stock has posted total returns of 611.4%. In comparison, the S&P 500 has posted returns of just 269.8% in that period.

Chart courtesy of StockCharts.com

Enterprise Properties stock has also been trouncing the market in the near term. As of this writing, EPD stock is up by:

6.5% over the last three months
Three percent over the last six months
Four percent year-to-date

Chart courtesy of StockCharts.com

The Lowdown on Enterprise Products Stock

Enterprise Products Partners L.P. is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services.

The company continues to generate excellent financial results, organically expand its operations, and make strategic acquisitions. All of this should help Enterprise Products increase its foothold as a leading midstream energy operator. Moreover, its strong cash generation should help EPD stock continue rewarding investors with reliable, growing, high-yield dividends.