Enterprise Products Partners (NYSE:EPD) is a place where a safe and growing dividend hides in plain sight. The market, however, seems to be in denial, underappreciating the company’s track record of balanced growth and steady income. A rare gem, this company continues to shine with its robust financial strength despite the industry’s downturn, making it an even safer investment for long-term seekers.
Income investors perennially seek a secure and advancing dividend. Often, high-yielding investment ideas come with considerable risk, leaving investors on tenterhooks, waiting for disaster to strike. However, embracing a growing distribution can not only offer a high yield but also potential capital appreciation, providing a total return that far surpasses a static high-yield investment. Choosing relatively safer stocks can magnify the safety and minimize unexpected losses, playing a vital role in cushioning an investor’s portfolio.
Simple Example
A prime example is Hess Corporation (HES). What began as an overlooked investment opportunity bloomed into a lucrative income source after strategic growth and a subsequent acquisition. This success story illustrates the significance of discerning growth and high-growth situations early, enabling investors to tap into undervalued prospects before they gain market traction.
Exemplifying this principle is the scenario where Chevron (CVX) acquired Hess, resulting in a substantial dividend hike and an augmented investment. Despite market inertia, good, solid growth companies like Hess, with the potential for attractive growth and substantial income, offer lucrative investment prospects, either through autonomous growth or strategic acquisitions.
How It Fits Enterprise Products Partners
Enterprise Products Partners boasts a generous, mostly tax-deferred distribution, akin to the safety of a utility business in the oil and gas industry. Additionally, the business mirrors real estate concerning prolonged tax-deferred benefits, and the “take or pay” nature of its contracts safeguards the company from full exposure to industry downturns, akin to the resilience of the utility business.
Despite a rich history of opportunistic acquisitions, the market grants little to no credit for potential growth through acquisition, necessitating visible backlog growth to signify growth prospects. Nonetheless, as evidenced by the growing backlog and strategic acquisitions, the company’s midstream business stands at the cusp of a potential growth phase, reinforcing the company’s growth outlook and resilience.
Furthermore, the company’s robust distribution coverage underscores an underlying endorsement for future growth, whether emanating from organic development or shrewd acquisitions. This, coupled with a conservative long-term growth assumption, presents a compelling investment proposition, strengthened by a relatively cheap valuation and the potential for recovery to historic valuations.
Energy Transition Never Happens
Contrary to calls for an energy transition, historical patterns indicate otherwise. The sustained growth in the usage of conventional energy sources and the nascent but expanding hydrogen market’s reliance on natural gas corroborate this outlook, emphasizing the enduring necessity of traditional energy sources. The company’s role in transporting and handling potential future renewable fuels further accentuates its potential for sustained growth and stability.
Cash Flow Per Unit Will Likely Grow
The perpetual demand for the transportation of fossil fuels underscores the company’s long-term growth prospects, and its existing infrastructure places it in a prime position to capitalize on future energy shifts. Moreover, the company’s robust debt rating and generous dividend growth beckon promising financing and investment prospects, positioning it favorably for future capital projects and acquisitions.
The Future
As evident from its historical trajectory, Enterprise Products Partners’ dilapidated market valuation belies its growth potential and financial robustness. Positioned as a strong buy, its current discounted valuation and generous dividend yield affirm the company’s resilience and potential for future growth. This proposition is bound to yield fruitful rewards for patient, discerning investors in the long run.
