Tags: enterprise | products | yield | dividend

Enterprise Products Is High-Quality 6 Percent Yielder

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Wednesday, 06 March 2019 04:26 PM Current | Bio | Archive

High-yield dividend stocks are attractive, but investors need to make sure a company’s dividend is sustainable.

In order for a high-yield security to be sustainable, it needs to have a strong business model that generates more cash flow than the cost of the distribution.

Master Limited Partnerships, or MLPs, routinely offer high yields. However, many MLPs have cut their payouts over the past five years.

Enterprise Products Partners (EPD) is a best-in-class MLP. It has increased its distribution for 58 consecutive quarters. With a high yield of 6.2%, Enterprise Products is a high-quality stock for income.

The Toll Road Business Model

Enterprise Products Partners was founded in 1968. It is a Master Limited Partnership, and operates as an oil and gas storage and transportation company. Enterprise Products has a tremendous asset base which consists of nearly 50,000 miles of natural gas, natural gas liquids, crude oil, and refined products pipelines. It also has storage capacity of more than 250 million barrels.

Enterprise Products has one of the largest transportation and storage networks in the country, which provides it with a tremendous competitive advantage. The business model is similar to a toll road. Enterprise Products’ assets collect fees based on materials transported and stored. Volumes are structured under a “take-or-pay” model, in which contracted customers receive product or pay a fee.

Cash flow is based more on volumes transported and stored, rather than on the price of oil and gas. The toll road midstream model provides some insulation against declining commodity prices, which is in part why Enterprise Products has maintained such a long history of distribution growth. The steady nature of Enterprise Products’ long-term contracts also provides hefty cash flow.

Enterprise Products reported record performance for 2018. For the fourth quarter, revenue of $9.2 billion increased 9% from the year-ago quarter, primarily due to strong volume growth. In 2018, liquid pipeline volumes increased 9%, natural gas pipeline volumes increased 12%, marine terminal volumes increased 12%, NGL fractionation volumes increased 14%, and propylene plant production volumes increased 23%. Distributable cash flow increased 29% for the fourth quarter, and 33% for the full year. Enterprise Products established 23 operational and financial records for the year.

Gushing Cash Flow Fuels Big Dividends

A sky-high dividend yield might seem appealing on the surface, but investors can see their investment lose value in the event of a dividend cut. This is why a focus on quality can be so important for income investors.

In terms of safety, Enterprise Products Partners is one of the strongest midstream MLPs. It has credit ratings of BBB+ from Standard & Poor’s and Baa1 from Moody’s, which are higher ratings than most MLPs. It also had a distribution coverage ratio of 1.5x in 2018, leaving plenty of room for distribution increases going forward.

Enterprise Products has a current annual distribution of $1.74 per unit, equivalent to a 6.2% current yield. With a high yield, growth potential, and high sustainability, Enterprise Products could be a top MLP for income investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
Enterprise Products has a current annual distribution of $1.74 per unit, equivalent to a 6.2% current yield. With a high yield, growth potential, and high sustainability, Enterprise Products could be a top MLP for income investors.
enterprise, products, yield, dividend
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2019-26-06
Wednesday, 06 March 2019 04:26 PM
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