Enterprise Products Partners(NYSE: EPD) is one of the top dividend stocks in the energy sector. The master limited partnership (MLP) has increased its distribution every year for more than a quarter century. Its payout currently yields more than 7%, putting it multiples above the S&P 500's dividend yield (less than 1.5%).
The MLP should have no trouble growing its high-yielding distribution for the next several years thanks to its strong financial profile and extensive growth-capital project backlog. Meanwhile, it sees promising growth potential for expanding its natural gas pipelines, which could further enhance and extend its growth outlook.
Locked in growth drivers
Enterprise Products Partners' management team discussed its growth drivers during its recent third-quarter conference call. The MLP's co-CEO, Jim Teague, noted:
We're on track to complete construction of two additional processing plants in the Permian, our Bahia pipeline, frac 14, phase 1 of our Neches River NGL export terminal, and the last phase of our Morgan's Point Terminal Flex Expansion in 2025. And we'll have one additional processing plant coming online in the Delaware in 2026. These projects provide visibility to new sources of cash flow for our company and enhance and expand the NGL value chain at the core of our business.
Overall, the MLP has $6.9 billion of major capital-growth projects under construction across its diversified energy-midstream footprint that should enter commercial service by the end of 2026. The company has ample financial flexibility to fund these projects, given that it generates excess cash after paying distributions ($2.3 billion through the first nine months of this year) and has the strongest balance sheet in the midstream sector. Because of that, as these projects start service and grow the MLP's cash flows, they will enhance its ability to return capital to investors through distribution growth and unit repurchases.
In addition to its visible organic growth, Enterprise Products Partners will get a boost from its recently closed acquisition of Pinon Midstream. The $950 million deal is highly accretive. It should add $0.03 per unit to its distributable cash flow next year before the impact of synergies.
Promising growth potential
Enterprise Products Partners' recent acquisition and large capital-projects backlog provide visibility into its earnings growth through 2027. Meanwhile, the company sees very promising future-growth potential beyond its current backlog. Co-CEO Jim Teague discussed one of the growth drivers on the call:
We're excited about the number of inbounds (inquiries) that we're getting related to new natural gas demand in Texas from both data centers and new gas-fired power plants that would be built under the Texas Energy Fund. There are a lot of people talking about exposure to data centers...and everybody who has a piece of pipe in Texas is talking it up. The reality is there's a very small list of companies with pipeline and storage assets best positioned to benefit from this build-out, and Enterprise is one of them.
Enterprise has an extensive natural gas infrastructure position. Its natural gas gathering system gathers, treats, and transports natural gas from production basins, like the Permian Basin in Texas. Meanwhile, its gas-transmission pipelines transport natural gas from regional processing facilities to end users, like electric power plants, local gas-distribution companies, and storage facilities. Finally, the company markets gas, buying it from producers, processing plants, and the open market and selling it to gas-distribution companies and electric utility plants.
That extensive infrastructure, much of which is in Texas, puts Enterprise Products Partners in a prime position to capitalize on the growing demand for gas. It should have ample opportunity to expand its infrastructure to support rising volumes.
Teague commented:
It is difficult to quantify the ultimate demand and timing at this point, not knowing which projects will go forward. That being said, it is one of the most promising signals we've seen in natural gas in a long time, and we're looking forward to serving this new influx of demand.
Securing future gas-infrastructure projects would enhance and extend the company's already robust growth profile.
An increasingly promising growth outlook
Enterprise Products Partners is a phenomenal income investment. The MLP offers a high-yielding payout that has increased for more than 25 straight years. That steady growth will undoubtedly continue. The midstream giant has a large pipeline of expansion projects under construction and very promising future-growth prospects. These features make it a great option for those seeking a lucrative and growing income stream and are comfortable with investing in MLPs, which send their investors a Schedule K-1 federal tax form each year.
Should you invest $1,000 in Enterprise Products Partners right now?
Before you buy stock in Enterprise Products Partners, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Enterprise Products Partners wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $813,567!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 28, 2024
Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
