Enterprise Products Partners (EPD) is one of the largest midstream energy companies in the country with a vast portfolio of service assets connected to the heart of American energy production, explains income expert Tom Hutchinson, editor of Cabot Dividend Investor.
It has $36 billion in annual revenues from an unparalleled reach in the industry that is connected to every major U.S. shale basin and 90% of American refiners east of the Rockies, and offers export facilities as well in the Gulf of Mexico.
As a midstream energy company, Enterprise makes money from the services of piping and storing oil and gas. It isn’t highly exposed to energy prices but makes its money on the fact that there is a lot of oil and gas sloshing around this country. And the U.S. is now the world’s largest producer of oil and gas.
That said, Enterprise makes money on volumes going through its systems. Those volumes have been diminished during the crisis, temporarily. But midstream companies are not taking it on the chin like most of the energy sector. And volumes will resume with the economic restart.
As an MLP, Enterprise pays out the bulk of earnings in the form of distributions. But, unlike most MLPs, EPD has only about a 60% payout ratio of funds from operations. The partnership keeps it low so it can fund growth projects internally.
Enterprise can easily weather a bad year and maintain the payout. It has $6.5 billion in cash and cash equivalents from which to pay $4 billion in annual distributions. The company also has a track record of raising the distribution every single year since its IPO in 1998 to defend.
With a huge yield that is safe, and an absurdly low price, currently 53% below the all-time high, EPD offers one of the best income opportunities in many years as well as the potential for strong capital appreciation over time.
