Enterprise Products: Ahead of the Crowd

04/09/2015 8:00 am EST

Focus: STOCKS

Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

The prevailing weakness and uncertainty in the energy sector favors blue chip master limited partnerships that own indispensible infrastructure to transport hydrocarbons to various end-markets, suggests Elliott Gue, editor of Energy & Income Advisor.

In this challenging environment, fortune favors MLPs with scale, diversification and low costs of capital, qualities that our favorite blue chips have in spades. Investors should consider easing into these positions over time instead of allocating a big lump of capital all at once.

The largest publicly traded partnership by market cap, Enterprise Products Partners (EPD) boasts an unparalleled asset base in terms of its geographic diversity and interconnections. The MLP is also helmed by a prescient management team that always seems to be ahead of the crowd.

Over the past few years, the MLP has invested heavily in developing innovative, demand-based solutions that support domestic production growth and take advantage of favorable differentials between North American and international energy prices.

These projects include expansions to the firm’s industry-leading propane and butane, the start-up of a major ethane export facility on the Gulf Coast, international shipments of minimally processed condensate, a propane dehydrogenation unit, and a header pipeline to deliver ethane to the Gulf Coast.

Not only do these demand-oriented projects generate incremental cash flow themselves, but these investments also increase throughput on Enterprise Products Partners’ midstream assets.

Enterprise Products Partners boasts one of the lowest costs of capital in the MLP space, thanks to its lack of a general partner, BBB+ credit rating, solid balance sheet, and robust distribution coverage.

In the fourth quarter, the MLP covered its distribution by 1.4 times, an impressive show of strength in a difficult environment. This margin of safety and pipeline of growth projects should ensure that Enterprise Products Partners continues to grow its distribution at the familiar annual rate of about 5.8%.

We also trust management to take advantage of the MLP’s low cost of capital to make the right acquisitions to build a platform for future growth. Enterprise Products Partners remains a foundational portfolio holding and rates a buy up to $36.

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