Enterprise Products Partners, LP (EPD) is a big yield pick with income safety, strong business fundamentals, and significant insider buying, asserts Rida Morwa, income expert and editor of High Dividend Opportunities.
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Enterprise is one of North America’s largest midstream energy companies. The partnership is asset-rich with over 50,000 miles of pipelines. EPD is an excellent blue-chip investment and a must-have for income investors for the following reasons:
Shareholder-Friendly Capital Allocation Priorities
EPD has a solid track record for distribution growth, with 24 years of continuous payment increases. The partnership’s distribution comes at a modest adjusted FCF payout ratio of 75%, and at the end of Q1 2023, the company reported a 1.9x trailing 12-month distribution coverage.
With ~$3.8 billion worth of projects going into service in FY 2023, EPD will see growing free cash flow and adequate cushion to continue raising the distribution.
The company is well-positioned to join the Dividend Aristocrat Club in 2024. In addition to the growing distributions, EPD is pursuing a $2 billion share repurchase plan with ~37% utilized as of the first quarter.
Management is a Significant Insider
It is not surprising that EPD is an excellent distribution steward and prioritizes capital allocation methods that benefit shareholders. Company insiders maintain a high 32% ownership in EPD, making management highly motivated to align their decision-making with the interests of shareholders.
Industry-Leading Leverage Levels
Maintenance and operation of midstream assets are capital-intensive. But EPD has done a terrific job in maintaining industry-low leverage levels. The partnership ended Q1 2023 with an industry-low 3x leverage ratio and maintains a strong balance sheet, rated A- by Fitch.
EPD’s weighted-average life of debt is ~20 years at a 4.6% rate. 97% of the total debt is fixed-rate, making the company relatively immune to this high-interest rate environment. In addition, EPD maintains a $4 billion liquidity profile, providing adequate flexibility with its cash flows.
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EPD investors needn’t worry about the growing use of EVs, windmills, solar panels, and other such infrastructure. 96% of manufactured goods contain petrochemical feedstock, making EPD a custodian of vital infrastructure assets. This 7.5% yielding blue-chip midstream partnership is a true buy-and-hold-forever investment.
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