Income investors have long sought out Master Limited Partnerships because of their high yields. Many MLPs yield 5% or more, which is especially attractive in an environment of historically low interest rates, notes Bob Ciura, income expert and editor of Sure Retirement.

But investors should not simply buy the highest-yielding securities; chasing extreme high-yielders is often a recipe for disaster. Many stocks with abnormally high yields above 10% are in dubious financial position, and some end up cutting their dividends.

The MLP space has seen many companies cutting or suspending their distributions over the course of 2020. But Enterprise Products Partners (EPD) has not only maintained its hefty distribution, currently yielding 8.8%, it has increased its distribution for 21 consecutive years.

One big reason for this is due to the company’s leading network of assets. Enterprise Products Partners’ assets include approximately 50,000 miles of pipelines, 260 million barrels of storage capacity for Natural Gas Liquids (NGL), crude oil, and other refined products; and 14 billion cubic feet of natural gas storage capacity.

Enterprise Products Partners also has a strong balance sheet including a relatively high credit rating of BBB+, which helps keep interest expense lower than many MLPs with weaker credit ratings.

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These qualities have helped Enterprise Products Partners hold up well in 2020, even with the coronavirus pandemic. Another factor helping to keep cash flow afloat is the company’s significant cost reductions.

In 2021 and 2022, Enterprise Products sees growth capital expenditures of $1.6 billion and $800 million, respectively, compared with $2.9 billion expected to be spent in 2020.

As a result, declines have been manageable this year. Over the first three quarters of 2020 combined, adjusted EBITDA and distributable cash flow declined 1.6% and 4.3%, respectively.

With a distribution coverage ratio of 1.7x in the third quarter, Enterprise Products Partners’ distribution appears highly secure, particularly if the U.S. economy recovers in 2021 and beyond.

The combination of DCF growth and distributions will offset an expected decline in the valuation multiple, to produce total returns above 13% per year moving forward.

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