Enterprise Products Partners(NYSE: EPD) is in the upper echelon of dividend stocks. It stands out for the attractiveness of its dividend and the financial metrics backing its payout. It's on such a sound financial foundation that investors can rely on its high-yielding distribution payments.
Here's a closer look at how the master limited partnership (MLP) stands out among the dividend elite.
A top-tier dividend stock
Enterprise Products Partners benchmarked several of its key financial metrics against companies that have increased their dividends for 25 years or more. The company is in that already elite group, having delivered its 26th year of distribution growth in 2024 by raising its payment by 5% over the past year. It compares very favorably to this dividend royalty.
The MLP compared its financial strength, valuation, and investment returns to other companies with 25 or more years of dividend increases. Its A- credit rating is in the top half of the companies on this list. Meanwhile, its 3 times leverage ratio, the lowest in the midstream sector, is in the top three-quarters of the group. Enterprise Products Partners also has a payout ratio in the top half of all companies (55.4% of its cash flow from operations). The company's conservative financial profile has enabled it to navigate the energy sector's volatility over the years.
Enterprise Products Partners also earns strong investment returns. Its 20.8% return on equity (ROE) is better than nearly half the companies on the list.
The MLP really stands out for its valuation metrics. The company currently trades at a 13.3% cash-flow-from-operations yield and a 7.3% dividend yield. That places it in the top 25% of all companies on this list.
Of all the companies on the list of dividend elite, Enterprise Products Partners is the only one with a yield above 7% and an A-rated balance sheet. That high rating suggests that the company's big-time payout is as sustainable as it comes.
The fuel to grow
Enterprise Products Partners is in an excellent position to continue increasing its high-yielding distribution in the future. As noted, the MLP has a very conservative payout ratio, which enables it to retain significant cash to fund its continued expansion.
For example, the company has produced $8.4 billion in cash flow from operations over the past 12 months. It distributed $4.4 billion of that money to investors and repurchased another $200 million of its units. That enabled it to retain $3.8 billion in cash, which covered nearly all its investment spending ($4.1 billion). It used its elite balance sheet to fund the difference.
The MLP expects to invest up to $3.75 billion in both 2024 and 2025 on growth-capital projects, a level it can easily fund with excess free cash and its balance-sheet capacity. Meanwhile, growth-capital spending is on track to fall to a range of $2 billion to $2.5 billion in 2026, given its current commercially secured capital-project backlog ($6.7 billion of major capital projects). That gives it the flexibility to approve additional expansion projects and make accretive acquisitions as opportunities arise.
Enterprise Products Partners has used its financial flexibility to make a couple of acquisitions this year. It spent $400 million to buy additional joint-partner interests from Western Midstream earlier this year. Meanwhile, it recently agreed to buy Pinon Midstream for $950 million in cash.
The company's secured capital-project backlog and recent acquisitions give it lots of visibility into its ability to grow its cash flow and distribution for the next few years. Meanwhile, it has the financial flexibility to continue investing in expanding its operations and cash flow in the future.
A very high-quality, high-yielding payout
Enterprise Products Partners is like investing in a very high-quality bond, only better. The MLP pays a high-yielding distribution that investors can bank on thanks to its top-notch financial metrics. Even better, that high-yielding payout should continue to rise steadily in the future, likely at a rate that more than offsets inflation. Those features make it a great investment for those seeking an attractive and extremely durable income stream (and are comfortable 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. The Motley Fool has a disclosure policy.
