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Enterprise Products: High Yield and Safety
05/16/2017 2:50 am EST
This MLP is one of the largest midstream energy businesses in the United States with its about $58 billion market cap. It has no general partner incentive distribution rights, giving it one of the lowest management overhead costs in the industry.
Enterprise Products Partners is an integrated midstream business with about 49,000 miles of pipeline and 250 million barrels of storage capacity.
Enterprise Products Partners is among the safest and best capitalized MLPs. The company has a BBB+/Baa1 credit rating, better than the majority of MLPs. The company currently has a reasonably safe 1.3x distribution coverage ratio and total available liquidity of $4.1 billion.
The MLP’s streak of distribution increases shows the ability and willingness to grow distributions even in challenging environments.
With that said, the company’s debt to EBITDA ratio of 4.4x is the highest it has been in several years. The partnership expects to slow its growth and de-leverage over the next few years.
The company has grown distributions per unit at 13.8% a year over the last decade. Several new projects are coming online in 2017 which will spur growth.
Further, $8.4 billion of growth projects are currently under construction and expected to be completed by 2020 while the company expects to invest an additional $2.7-$3.0 billion in 2017.
The company will likely continue to deliver strong growth over full economic cycles, but at a slower clip than the last decade. I expect 8% to 10% overall distribution growth on a per-unit basis.
Enterprise Products Partners’ 5 year historical average dividend yield is 4.9%. The company’s dividend yield is 6.2%. The company appears undervalued due to low oil prices.
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