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Partners for business products (NYSE:EPD) has a talent for increasing cash distributions to investors. The Master Limited Partnership (MLP) has already given its investors two pay rises this year and increased its payout by 5% over the past twelve months. This continues the long history of dividend growth. This year marks the 26th year in a row that distribution has increased.
The MLP has sufficient fuel to further increase distribution, which currently yields more than 7%. That makes it an excellent option for those looking for a lucrative and steadily increasing income passive income current.
Continuing the series
Enterprise Products Partners recently paid its final quarterly distribution of $0.525 per unit ($2.10 annualized). That was about 2% above the level of the previous quarter and 5% higher than the level of a year ago. The MLP has now increased his payout every year since initial public offering (IPO) 26 years ago.
Several factors have contributed to the company’s ability to achieve such consistent growth. For starters, the midstream business generates terribly stable cash flow. It has a diversified portfolio of midstream assets including pipelinesprocessing plants, storage terminals, export complexes and petrochemical plants. Most of it assets produce fee-based cash flows, supported by long-term contracts or government-regulated rate structures.
In the meantime, the company pays out a conservative percentage of its stable cash flows. Over the past twelve months, Enterprise Products Partners generated $8.4 billion in adjusted cash flow from operations and returned $4.4 billion to investors. That puts the payout ratio at about 52% of cash flow, which is conservative for a midstream company. It allows the MLP to retain billions of dollars in cash flow to finance expansion projects, repurchase units and maintain a strong balance sheet.
Speaking of balance sheet, Enterprise Products Partners has one of the best in the midstream sector. The MLP has an A rating and a low 3.0 times leverage ratio. This allows the country to borrow money at lower rates and better terms to finance its operations and expansion. For example, the company recently priced $1.1 billion of 10-year notes at a 4.95% interest rate and $1.4 billion of 30-year notes at a 5.55% interest rate, allowing it to refinance maturing debt and finance expansion projects.
Lots of visible growth coming below the pipeline
Enterprise Products Partners should have no problem continuing to increase their distribution payments in the future. It is his vision to fuel that vision big backlog of expansion projects. The MLP currently has $6.7 billion in major capital projects under construction that should come online in 2026. These projects include additional processing plants, pipeline expansions and export capacity. The company’s commercially secured projects give the company significant insight into its future cash flow growth and its ability to return more money to investors.
The company continues to do so find new growth opportunities. For example, it recently announced plans to move forward with a major expansion project along the Houston Ship Channel. The project will increase propane and butane export capacity by 300,000 barrels per day when it comes into operation in late 2026. The MLP has several other projects in development, including the Sea Port Oil Terminal, that could boost growth beyond 2026.
Acquisitions are another big driver of distribution growth for enterprise. The company has a long history of completing profitable deals, from large-scale corporate mergers to asset acquisitions. For example, she has taken over interests in two joint ventures from her partner Western midstream partners earlier this year for $375 million. It now owns 100% of Whitehorn Pipeline Company and EF78. It also bought that MLP’s stake in the Panola Pipeline for $25 million, increasing its stake to 70%. Given its elite balance sheet, Enterprise Products Partners has sufficient financial flexibility to continue making acquisitions when attractive opportunities arise.
A leading producer of passive income
Enterprise Products Partners continues to grow its lucrative distribution. That trend should continue. The company has one of the strongest financial profiles in the midstream sector and enough of growth come down the pipeline. That’s why it is so a great one option for those who are looking for an attractive and steadily increasing income stream (and understand the tax implications of investing in MLPs, including that they Schedule K-1 federal tax form every year).
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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has one disclosure policy.
This 7% yielding energy stock just raised its dividend for the 26th year in a row was originally published by The Motley Fool