59 Straight Dividend Hikes And Counting...
By Nathan Slaughter | May 29, 2019 |

Regardless of the industry, it's usually smart to listen to your customers. 

Enterprise Products (NYSE: EPD) -- a longtime holding in my High-Yield Investing premium newsletter -- has been getting requests from oil producers to build a new crude pipeline from the Permian Basin to Houston -- the gateway to Gulf Coast refineries and export terminals.

On May 2, the master limited partnership (MLP) filed the necessary permits.

EPD logoThe size and scope of this new project haven't yet been finalized, but the company should have little trouble finding commitments and signing contracts when the time comes. While raw material costs have been escalating (steel tariffs don't help), Enterprise has shrewdly locked in prices for steel pipe.

This new pipeline will allow the MLP to repurpose an existing line running a similar route from Midland to Houston to capitalize on the demand for natural gas liquids (NGLs) takeaway capacity. It will add to an ambitious $5.0 billion backlog of growth projects that are currently under construction. Over half of these projects will be placed into service (and start earning fees) by the end of the year.

In the meantime, we can already see the financial impact of previous spending. The volume of crude oil, refined products and petrochemicals running through the firm's vast pipeline network increased by 400,000 barrels per day last quarter to 6.5 million bpd. Natural gas pipeline and processing volume also registered solid growth, as did the firm's marine storage terminals.

These and other operations netted $1.6 billion in distributable cash flow (or DCF - a key metric for MLPs) for the quarter, a healthy increase of 18%. The surge in DCF is allowing the company to self-fund its aggressive growth investments without the need for external capital. 

At the same time, distribution coverage on the generous dividends has widened to 170% -- one of the most comfortable in the midstream universe.

Action to Take 
EPD has just hiked its dividend (for the 59th consecutive quarter) by 2.3% to $0.4375 per unit. Some would like to see that pace quickened given the rapidly growing cash flows. But I don't mind the conservative dividend growth, which leaves more cash on the table for expansion projects.

The 6% yield is already triple the market average. And the company generated $665 million in DCF above and beyond its dividend obligations last quarter -- almost 50% more than the excess from the same period last year.

We've owned EPD in our High-Yield Investing portfolio for quite some time -- and longtime subscribers have been rewarded with steadily rising dividends, and a total return of nearly 200%. But I still have it rated as a "buy" today, since EPD is well-positioned to benefit from record oil and gas production and growing exports into hungry overseas markets. With record cash flows, a widening dividend coverage, and new projects bearing fruit, I fully expect to see even more gains (and income) moving forward.

(This article originally appeared on StreetAuthority.com.)


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