Enterprise Products Partners (EPD 1.51%) has been one of the most reliable income stocks in the energy sector. The master limited partnership (MLP) has increased its cash distribution for 25 years in a row. That's impressive, given the industry's volatility.
The pipeline giant currently offers a 7.6%-yielding payout. That lucrative passive income stream is on an extremely firm foundation, which was evident in the MLP's recently reported first-quarter results.
NYSE: EPD
Key Data Points
A cash flow machine
Enterprise Products Partners produced $1.9 billion of distributable cash flow during the first quarter, roughly flat with the year-ago period. "Enterprise began 2024 with another strong quarter," stated co-CEO Jim Teague in the earnings press release. The company's integrated energy infrastructure system transported the equivalent of 12.3 million barrels per day in the period, including oil, petrochemicals, refined products, natural gas liquids (NGLs), and natural gas. Of note, its marine terminals handled a record 2.3 million barrels of hydrocarbons per day. The company benefited from the contribution of new assets placed into service during the period, which helped offset the impact of weaker commodity prices.
The MLP produced enough cash to cover its lucrative distribution by a comfy 1.7 times, which supported its ability to raise its payout by 5% over the past year. That enabled Enterprise to retain $786 million of excess free cash flow to fund expansion projects and maintain its elite balance sheet.
The company invested $875 million into growth capital projects during the first quarter. That kept its leverage ratio at 3.0, right on target. (It aims for leverage of 3.0, plus or minus 0.25 points). The company also had $4.5 billion of liquidity. These features help back its A-rated credit.
Enterprise Products' combination of stable cash flows, strong distribution coverage, and low leverage put its high-yielding distribution on a very firm foundation.
Growth is coming down the pipeline
While Enterprise Products Partners' distributable cash flow has flattened out over the past year, it should return to growth mode in the coming quarters. The company completed the expansion of its Permian Basin natural gas processing infrastructure near the end of the first quarter, bringing its Leonidas and Mentone 3 plants online. It also began service on phase one of its Texas Western Products System in March. Meanwhile, it should complete phase two in the second and third quarters. "We look forward to seeing the contributions from these valuable market solutions in the second quarter of this year and beyond," stated Teague in the earnings release.
Those projects are only the beginning. Enterprise Products Partners has about $6.9 billion of major capital projects currently under construction. That's a $400 million increase since its last update, driven by several new projects in the Permian Basin. These projects should enter service through 2026, giving it lots of visibility into future cash flow growth.
The company expects to invest $3.25 billion to $3.75 billion on growth capital projects over the next two years, with another $2 billion to $2.5 billion likely in 2026. These spending ranges also include projects currently under development that the company could approve in the future. However, they don't include its proposed SPOT export terminal, which recently received its deepwater port license from the U.S. Maritime Administration. Adding that large-scale project would further enhance its long-term growth visibility.
With growth visibility through 2026 and a strong financial foundation, Enterprise Products Partners should have no problem continuing to increase its distribution in the coming years.
A premier passive income investment
Enterprise Products Partners has been a terrific income investment over the years and should continue to be one in the future. It supports its high-yielding distribution with stable cash flows and a top-notch financial profile. Meanwhile, it has lots of growth coming down the pipeline, giving it more fuel to increase its payout. That makes it an excellent option for those seeking a sustainable income stream and are comfortable with the potential tax complications of investing in MLPs, including that they send Schedule K-1s at tax time instead of a 1099-DIV form.
