Enterprise Products Partners: A Steady Choice for Income Investors

Enterprise Products Partners (NYSE: EPD) stands out in the North American midstream sector. Utilizing a toll-taker business model, this master limited partnership (MLP) may seem unexciting. However, its robust 6.8% distribution yield makes it an appealing option for income-focused investors.

Understanding Enterprise Products Partners’ Role

Enterprise Products Partners owns vital energy infrastructure, including pipelines, storage, and processing facilities. These assets are essential for transporting energy from production sites to consumption points. Without entities like Enterprise Products, the energy industry would struggle to function effectively.

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In the midstream sector, most companies, including Enterprise, charge fees for asset usage, making commodity prices less significant as long as demand stays strong. Revenue growth possibilities are limited primarily to two avenues: raising prices and expanding through new asset development or acquisitions. Unfortunately, capital investment opportunities have diminished, which constrains growth in infrastructure projects.

Growth Potential for Enterprise Products Partners

Despite these challenges, Enterprise Products remains a significant player with substantial investment capabilities. Currently, the MLP has approximately $7.6 billion in capital projects underway, with completion timelines extending to 2026. Additionally, $700 million in future projects are being planned, further extending the company’s investment horizon.

This situation is promising for income investors. Although no single project is expected to greatly increase distributions, the cumulative impact supports modest annual growth. As trends continue, a 5% annual increase in distribution seems feasible over the next three years, nearly doubling the rate of historical inflation.

Another advantage is Enterprise’s size, allowing it to act as an industry consolidator. It has the potential to acquire attractive assets or competitors, potentially increasing distribution growth. Though acquisition-driven growth cannot be guaranteed, the 5% growth projection coupled with a strong yield is a compelling investment narrative for the coming years.

Who Should Consider Investing?

Enterprise Products Partners may not appeal to all investors, but it’s particularly attractive for those focused on dividend income. Investors can benefit from a 6.8% yield without sacrificing growth potential. While distribution increases will be gradual, this steady growth will help investors keep pace with inflation.

Evaluating a $1,000 Investment in Enterprise Products Partners

Before purchasing shares in Enterprise Products Partners, it’s essential to consider other opportunities in the market. Analysts have identified what they believe are the top stocks for investment. Notably, Enterprise Products Partners did not make that list. These identified stocks could yield substantial returns in the upcoming years.

Historical Performance Examples:

Consider Netflix, which appeared on a recommendation list on December 17, 2004. An initial investment of $1,000 at that time would now be worth $598,818.

Similarly, investing in Nvidia on April 15, 2005, would have turned $1,000 into $666,416 today.

It’s essential to analyze all opportunities carefully before making investment decisions. Reuben Gregg Brewer currently holds no positions in the stocks mentioned. The Motley Fool recommends Enterprise Products Partners.

The views expressed in this article are those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.