Enterprise Products Partners (EPD) was founded in 1968. It is structured as a Master Limited Partnership (MLP) and operates as an oil and gas storage and transportation company, notes Ben Reynolds, dividend expert and editor of Sure Retirement.

Enterprise Products Partners has a tremendously large asset base, which consists of nearly 50,000 miles of natural gas, natural gas liquids, crude oil, and refined products pipelines. The partnership has storage capacity of more than 250 million barrels for liquids and 14 Bcf for natural gas. These assets collect fees based on materials transported and stored.

On November 1, 2022, Enterprise Products Partners reported third-quarter results. GAAP earnings-per-share for the third quarter totaled $0.62 and was $0.01 better than expected.

Distributable cash flow (DCF), excluding proceeds from assets sales, increased 16% to $1.9 billion compared to $1.6 billion for the third quarter of 2021. DCF provided 1.8 times coverage of the distribution declared with respect to the third quarter of 2022.

Current guidance for growth capital investments associated with projects for 2022 and 2023 is $1.6 billion and $2.0 billion, respectively. Management expects sustaining capital expenditures to be approximately $350 million for this year.

Enterprise Products Partners’ primary competitive advantage is the size of its asset base. The time and capital required to duplicate the partnership’s pipeline system would be incredibly cost prohibitive.

The partnership’s financial performance isn’t directly tied to the rise and fall of energy prices as its assets act as toll roads and storage facilities for customers who need to move or store liquids and natural gas. This provides some insulation from the normal ups and downs of the energy market.

As such, Enterprise Products Partners is somewhat more insulated from economic downturns. For example, distributable cash flow actually increased 64% from 2007 through 2009. On the plus side, the partnership tends to perform even better under economic recoveries.

Distributable cash flow (DCF) nearly doubled to $4.1 billion from 2010 to 2012. The ability to grow under adverse conditions and flourish during a recovery has enabled Enterprise Products Partners to grow its dividend for 24 consecutive years. Shares yield 7.8%, which is likely sustainable given the projected payout ratio of 55%.

We believe that DCF-per-unit is a more accurate measuring tool than earnings-per-share for an MLP. Enterprise Products Partners has several billion dollars’ worth of major capital projects currently under construction, which should boost cash flows as these projects come online over the next few years.

Exports will also provide tailwinds to results as the demand for liquefied petroleum gas and liquefied natural gas continues to grow. DCF-per-unit growth is projected to be 1.9% annually through 2027.

Shares of the partnership are trading at 7.0 times DCF-per-unit, below our target of 8.0, which implies a valuation tailwind of 2.7% per year. Combined with the 1.9% growth rate and 7.8% dividend yield, total returns could reach 10.9% annually over the next five years.

Subscribe to Sure Retirement here…