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Enterprise: Bluest Blue Chip MLP

10/13/2015 7:00 am EST

Focus: MLPS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Our latest featured recommendation is considered the bluest of blue chip energy master limited partnerships (MLPs), explains Mark Skousen, editor Forecasts & Strategies.

Based in Houston, Enterprise Products Partners (EPD) operates 51,000 miles of oil and gas pipelines in addition to storage and marine transportation.

Up to 85% of its income is fee-based and depends on the volume of oil & gas transported through its pipelines, rather than on oil & gas prices.

The company’s cash flow has been roughly flat for the first six months of the year but is more than enough to cover its current distribution of 38 cents per unit.

Volume of crude oil going through its pipelines rose 15% in the most recently reported quarter, to 1.5 million barrels per day. This resulted in 28% operating profit growth.

Similarly, operating profit in the petrochemical and refined products sector rose 12% last quarter.

Enterprise Products also has continued to increase its quarterly distribution. It recently announced its 44th consecutive quarter increase.

The new distribution totals $1.52 per unit on an annualized rate, 5% higher than the distribution this time last year. And investors can be confident that the distribution is safe.

Enterprise Products covered its distribution last quarter with 1.3 times as much distributable cash flow.

Many Wall Street analysts have raised their price target for Enterprise Products, despite the sell-off. Motley Fool suggests that Enterprise Products is a “screaming buy.”

Yet fear of lower oil prices has sent it to its lowest level in two years. Now the annualized distributed yield is more than 6%.

Assuming Enterprise keeps raising its distribution every quarter, and has the cash flow to pay for it (it does so far), bargain hunters are happy to take advantage.

As Hetty Green, America’s first female millionaire, used to say, “When I see something cheap, I buy a lot of it.”

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