Enterprise Products Partners(NYSE: EPD) is an elite dividend stock. The master limited partnership (MLP) has increased its cash distribution to investors for 26 straight years, including by 5% over the past year. That payout currently yields over 7%, well above the S&P 500's sub-1.5% average.
The MLP should have plenty of fuel to continue increasing its big-time payout in the future. It recently agreed to spend $950 million on an acquisition to add even more fuel to its dividend growth engine.
Topping off the tank
Enterprise Products Partners recently revealed that it's acquiring Pinon Midstream for $950 million in cash. Pinon Midstream provides natural gas gathering and treating services in the Delaware Basin side of the Permian. It operates 50 miles of gas gathering and redelivery pipelines, five compressor stations, and 270 million cubic feet per day (MMcf/d) of hydrogen sulfide and carbon dioxide treating facilities. These assets generate predictable cash flow backed by long-term, fee-based contracts.
Pinon Midstream also provides the MLP with visible growth potential. It's currently working to expand its treating capacity to 450 MMcf/d, which should come online in the second half of next year. Enterprise also sees the potential to develop a third injection well that could support up to 750 MMcf/d of total treating capacity.
Enterprise is excited about this deal. Co-CEO Jim Teague commented on the acquisition in a press release. He stated:
We believe the Piñon management team has developed the premier sour natural gas treating system in the Delaware Basin. These assets accelerate our entry into this region by at least three or four years. These assets are highly complementary to our midstream energy system and provide us an excellent entry point into the eastern flank of the Delaware Basin for us to expand our natural gas processing footprint. Our entry will provide producers a choice for reliable and value-added processing services.
The acquisition will also be very accretive to the MLP's cash flow. Enterprise sees it adding $0.03 per share next year, and that's without any benefit from expected commercial and operating synergies. That will give it more cash flow to grow its distribution in 2025 and beyond.
Lots of growth drivers
The Pinon acquisition adds to Enterprise Products Partners' already strong growth profile. The MLP currently has $6.7 billion of expansion projects under construction that it expects to complete through the end of 2026. They include new natural gas processing plants, pipeline expansions, and additional export capacity. These projects provide a lot of visibility into the company's future cash flow growth and its ability to return more capital to investors.
The MLP has several more organic expansion projects under development. They include large-scale projects like its Sea Port Oil Terminal, additional processing and export capacity additions, and pipeline expansions. The company is also evaluating lower carbon opportunities, like carbon capture and storage.
Enterprise Products Partners also has the financial flexibility to make additional acquisitions. It has the highest credit rating in the midstream sector and a low 3.0 times leverage ratio, which provides it greater access to low-cost capital to make accretive deals. The Pinon acquisition is its second notable transaction this year. Enterprise also spent $400 million to buy several joint venture interests from Western Midstream Partners.
A well-oiled income-producing machine
Enterprise Products Partners has a long history of growing its high-yielding distribution. The company has a knack for making accretive acquisitions and investing in high-return capital projects to fuel its growth. Its Pinon deal will add to its already strong growth prospects, which should give this MLP even more fuel to increase its payout in the future. So, if you want to collect a steadily rising stream of passive income (and are ok with receiving a Schedule K-1 Federal Tax Form each year), Enterprise Products Partners is a fantastic option.
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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
