Enterprise Products Partners(NYSE: EPD) offers investors the best of both worlds. The master limited partnership (MLP) provides a prodigious passive income stream that currently yields over 7%. On top of that, it has an excellent record of growing. It has increased its payout for 26 straight years, fueled by its steadily rising cash flow.
The MLP has plenty of fuel to continue growing. That was abundantly clear in its third-quarter earnings report on Tuesday. Here's a closer look at that report and all the growth it has coming down the pipeline.
Drilling down into the numbers
Enterprise Products Partners generated $2 billion of distributable cash flow during the third quarter, a 5% increase from the prior-year period. Several factors fueled that growth, which co-CEO Jim Teague highlighted in the earnings press release. He noted, "Enterprise reported another strong quarter as recently completed organic growth assets generated new sources of earnings and cash flow." The company benefited from the contributions of three natural gas processing plants that entered service over the last 12 months. Those projects helped contribute to the company setting five volume records during the quarter, including 7.5 billion cubic feet per day of inlet gas processing volumes.
The pipeline company's growing cash flow enabled it to continue increasing its distribution. The MLP has raised its payout twice over the past year, increasing it by 5% overall. Enterprise Products Partners can easily afford its high-yielding distribution. It produced enough cash during the quarter to cover its payout by a comfy 1.7 times. Meanwhile, its payout ratio over the last 12 months is a low 56% of its adjusted cash flow from operations, which also includes unit repurchases.
Enterprise Products Partners used its retained cash flow and elite balance sheet to invest in expanding its operations. The company invested another $1.1 billion into growth capital projects during the third quarter. Meanwhile, it recently closed its accretive $950 million acquisition of Piñon Midstream. Even with that heavy investment, the company ended the quarter with a low 3.0 times leverage ratio, right on target with its long-term goal.
Even more growth ahead
Enterprise Products Partners ended the second quarter with $6.9 billion of major capital projects under construction. The company added a couple of projects to its backlog, primarily in the Permian Basin related to its acquisition of Piñon Midstream. As a result, it expects its organic growth capital spending to be in the range of $3.5 billion to $4 billion next year. That's a little bit higher than its expected spending range for 2023 ($3.5 billion-$3.75 billion).
"Looking ahead to next year," stated Teague in the earnings press release: "We are on track to complete construction on two Permian processing plants, the Bahia pipeline, Fractionator 14, Phase 1 of our Neches River NGL Export Terminal and the last phase of our Morgan's Point Terminal Flex Expansion in 2025. These projects provide visibility to new sources of cash flow for the partnership and enhance and expand the NGL value chain at the core of our business."
Meanwhile, the MLP has more growth coming in 2026 and beyond. It currently expects its capital spending range to be between $2 billion and $2.5 billion in 2026. That investment includes completing construction on its Mentone West 2 Plant, additional expansion at its Neches River NGL Export Terminal, and its Enterprise Hydrocarbons Terminal export facility expansion. These projects will provide cash flow growth throughout the year and heading into 2027, supporting additional capital returns.
Enterprise Products Partners is working to enhance and extend its outlook for future growth. It recently signed agreements to develop carbon dioxide transportation networks in Texas for a subsidiary of Occidental Petroleum. The company will start building that project as soon as Occidental gives it notice to proceed. In addition, the MLP is looking to develop a large offshore oil export facility. Meanwhile, it has several other potential expansion opportunities, including some projects associated with Piñon Midstream. Securing these and other projects would add even more fuel to the company's growth engine.
A great combination of growth and income
Enterprise Products Partners has done a magnificent job growing its earnings and distribution over the years. It currently offers investors a high-yielding payout and a healthy growth profile. Because of that, it should be able to produce attractive total returns in the coming years. That makes it a great investment for those seeking income and upside (and who are comfortable with investing in MLPs, which send their investors a Schedule K-1 federal tax form each year).
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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.
