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.
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.
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.