Enterprise Products: 7.33% Yield and 26-Years of Dividend Growth

Key Points

• EPD has been outperforming the broader oil and gas transport industry recently, along with notable peers like Magellan, Cheniere and Oneok.
• Energy limited partnerships, including EPD, are appropriate for income-seeking investors due to tax advantages and income distributions.
• The company's revenue is tied to energy prices, but fee-based contracts provide stability during price fluctuations.

With its attractive 7.33% dividend yield, Enterprise Products Partners NYSE: EPD is drawing in buyers seeking solid returns.

Houston-based Enterprise Products is a midstream energy company that transports, stores and processes natural gas, crude oil and refined products. 

The stock has been outperforming the broader oil and gas transport and pipeline industry in recent months, although other standouts include fellow large caps Magellan Midstream Partners L.P. NYSE: MMP, Cheniere Energy Partners L.P. NYSEAMERICAN: CQP and Oneok Inc. NYSE: OKE.

Energy-industry limited partnerships such as Enterprise Products and many other companies in the oil and gas transport industry often pay high dividends. That’s because their structure offers tax advantages, and are required to distribute a significant portion of their income to investors.

Long History of Dividend Increases

MarketBeat’s Enterprise Products dividend data shows a 26-year history of increasing the shareholder payout. That earns it a place on the dividend achievers list. 

Real estate investment trusts, or REITs, offer similar benefits when it comes to taxes and distribution of income via dividends. 

That attracts income seekers, which can help keep the stock from declining too much even in a broad sector or market pullback. 

For example, in the early months of 2023, the broader energy sector was declining, as you can see using the Energy Select Sector SPDR Fund NYSEARCA: XLE chart. Meanwhile, Enterprise Partners was outperforming the sector, as were oil and gas transporters as a group.

For the full year, the charts of both the XLE ETF and Enterprise Partners tell a similar story: Despite recent price gains, neither has been able to break through price resistance going back to last year. 

Understanding Price Resistance 

When you see a stock or ETF that’s struggling to break out of price resistance, you’re seeing some kind of barrier that’s preventing the price from rising beyond a certain level. This resistance can be due to factors such as historical price ceilings, investor sentiment or fundamental issues within the company.

Historical price ceiling is a relevant factor for Enterprise Partners. The stock hasn’t traded above $30 since 2018. It’s been forming a base below $27.36 since August 2022. On September 21, Enterprise Partners stock rallied to a high of $27.45, its best level in over a year. 

You don’t own Enterprise Partners if you’re looking for a skyrocketing growth stock like AppLovin Corp. NYSE: APP, which is up 273.50% year-to-date. Instead, look to Enterprise Partners and other limited partnerships and REITs for the income. 

Enterprise Partners has a very reliable track record of maintaining its value, as it’s been finding a floor near $23 for the past year. 

Reliable Earnings Track Record

The increasing dividends reflect the company’s long history of profitability. Earnings occasionally decline year-over-year, but the company’s profit has been dependable. 

Analysts expect the company to earn $2.53 a share this year, down a penny from 2022. Next year, that’s expected to increase by 6% to $2.68 per share. 

Over the past five years, the company’s net income and free cash flow have been growing; the company’s three-year earnings growth rate is 8%, very respectable but not in the growth stock category. But remember, the appeal of Enterprise Products is not its fast price growth; instead, it’s the stability of the dividend, its share price, and its earnings.

Its three-year revenue growth rate is actually in what you might consider growth-stock territory, at 34%. 

Revenue Influenced By Energy Prices

Enterprise Products' revenue is influenced by energy prices, with income increasing during price upswings as we’ve seen recently. However, its business model includes fee-based contracts, ensuring steady revenue despite energy price fluctuations.

MarketBeat’s Enterprise Products analyst ratings show a consensus view of “moderate buy” with a price target of $30.70, an upside of 12.66%.

Enterprise Products is worth considering for investors seeking stable income without much price volatility. The stock’s beta is 0.45, meaning it’s less volatile than the broader market. The midstream industry is expected to grow significantly in the coming years, which should reassure investors about the continuation of the dividend.