Can El Paso Pipeline Partners Maintain Its Healthy Dividend?

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As investors, we want to earn the highest possible return possible. However, the uncertainty of today's environment makes it difficult to forecast future returns. One way to make sure we earn our keep is to focus on dividends. That way, we get paid cash in regular installments and are not at the mercy of Mr. Market's mood swings.

El Paso Pipeline Partners (NYS: EPB) currently boasts a 5.0% dividend yield. This qualifies it as a high-yield dividend payer, so it's likely to make it onto a lot of dividend payers' radars. But is the dividend sustainable? Better yet, can this company grow its cash payments over time?

Inside the company
El Paso Pipeline Partners went public in November 2007, in the biggest IPO for a master limited partnership, or MLP. Since then, it has grown both organically and through acquisitions to become one of the 10 largest MLPs.

The company's assets are in the Southeast, the Gulf Coast, and the Rockies. With weighted average contract lives of seven years or more in each of its regions, El Paso Pipeline Partners' assets will generate stable cash flows for the foreseeable future.

Tracking recent performance
Just last week, the company announced a $0.48 cash distribution. This new distribution is 4% higher than the $0.46 paid in the first quarter of 2011 and is 20% higher than the $0.40 paid in the second quarter of 2010. With a distribution coverage of 1.4 times in 2010, the cash distributions look to continue going forward.

Let's see how El Paso Pipeline Partners LP stacks up next to some of its peers.

Company

Forward P/E

Yield

5-Year Annualized Dividend Growth

El Paso Pipeline Partners19.05.00%
Enterprise Products Partners (NYS: EPD) 23.25.5%6.2%
Enbridge Energy Partners (NYS: EEP) 19.26.9%2.0%
Inergy (NYS: NRGY) 152.78.5%42.0%

Source: Capital IQ, a division of Standard & Poor's.

El Paso Pipeline Partners' 0% dividend-growth number is misleading, since the company has not yet been public for five years. In an impressive display of returning cash to its unitholders, the company has raised its quarterly distribution every quarter since its IPO. In fact, the latest distribution of $0.46 in April 2011 was more than triple the first distribution of $0.128 in January 2008. This shows that it's always good to look beyond your initial screens. There may be more to the story, as there is here.

Foolish bottom line
With its continually growing dividend payout, El Paso Pipeline Partners will continue to draw investors' attention. The cash distributions have grown every quarter in the past four years, with more growth to come. The long average contract lives across its asset base should provide visibility of future cash flows for yield-hungry investors looking to profit from increased natural-gas usage in the United States.

Interested in El Paso Pipeline Partners? Add it to your Foolish watchlist.

At the time this article was published Paul Chi has no positions in any companies mentioned. Motley Fool newsletter services have recommended buying shares of Enterprise Products Partners and El Paso Pipeline Partners. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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