High-yielding dividend stocks are riskier. Many of them have cut their payments in the past due to weaker financial profiles.
However, I fully trust Enterprise Products Partners’ (EPD -1.23%) 5.8%-yielding payout right now. Here are three reasons why I think it’s safe.
Image source: Getty Images.
Durable cash flow
Enterprise Products Partners operates an integrated footprint of critical energy infrastructure. The master limited partnership (MLP), an entity that sends a Schedule K-1 Federal tax form, has broad diversification across asset types (e.g., pipelines, processing plants, and export terminals), products (e.g., oil, natural gas, natural gas liquids, and petrochemicals), customers, and geography. Long-term, fee-based contracts underpin about 80% of its earnings, providing a very stable cash flow base. This combination of diversification and stability has helped cushion the impact of market downturns over the years.
Strong financial metrics
Enterprise Products Partners generated a record $2.3 billion of operational distributable cash flow during the second quarter. That was enough to cover its high-yielding distribution by a very comfortable 1.9 times. This allowed the MLP to retain $1.1 billion in distributable cash flow during the quarter, which it used to invest in expansion projects, repurchase units, and maintain its balance sheet strength.
Speaking of the balance sheet, Enterprise Products Partners ended the second quarter with a leverage ratio of 3.0x. That’s right in line with its conservative target level. It supports the company’s strong credit ratings (A-/A3), which are the highest in the energy midstream sector. The MLP’s fortress-like financial profile provides additional support for its high-yielding distribution.
Enterprise Products Partners
Today’s Change
(-1.23%) $-0.48
Current Price
$38.17
Key Data Points
Market Cap
Day’s Range
$38.04 – $38.75
52wk Range
$30.01 – $40.16
Volume
1.7M
Avg Vol
3.1M
Gross Margin
12.98%
Dividend Yield
5.71%
28 years and counting
Enterprise Products Partners’ strong financial metrics give it the flexibility to continue investing in the expansion of its operations. The MLP invested $1 billion into growth capital projects during the second quarter. It currently plans to invest $2.9 billion–$3.4 billion in expansion projects this year, after adjusting for $600 million in asset sales. Meanwhile, it expects to invest another $3 billion next year. Overall, it has $6.5 billion of major growth projects under construction that should enter commercial service through the first quarter of 2029.
These expansions will grow its cash flow, providing further support for the distribution. Enterprise Products Partners will likely continue to raise its distribution. It has increased its payout for 28 straight years, including by 2.8% over the last 12 months.
A trustworthy payment
Enterprise Products Partners isn’t as risky as some other high-yield dividend stocks. The MLP generates durable cash flows, has a conservative financial profile, and a history of growth that should continue. That’s why I trust it to anchor my income portfolio and believe it can continue to deliver steady, growing income to investors like me for years to come.
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