3 Reasons the Market Still Loves This Dividend Stock
Yielding just more than 4%, Enterprise Products Partners is not the master limited partnership that commands a tremendous amount of market attention. It is, however, one of the best MLP options for investors, and today we're going to look at three reasons that show just why that is.
1. Fiscal fitness
An MLP's business structure makes it more or less dependent on issuing debt and equity to grow. That in turn, means that its credit rating is extremely important. Enterprise has achieved the highest possible credit rating for an MLP issued by Standard & Poor's: BBB+. Magellan Midstream Partners is the only other MLP on the market to attain this rating. This has a direct impact on the interest rates that Enterprise pays on its debt.
Speaking of debt, this is an area where Enterprise shines. The partnership's debt-to-adjusted EBITDA ratio currently sits at 3.8 times. Some of its peers, like Energy Transfer Partners , sport ratios much higher, at 4.2 times. On top of that, a whopping 46% of Enterprise's debt is due after 2035, which gives it flexibility to invest in growth projects now, instead of paying off large principals.
Finally, we must address the absence of a general partner, which Enterprise bought out in 2010. This means one key thing -- that is, Enterprise does not pay incentive distribution rights -- also lowers its cost of capital. When it's all said and done, this is one of the most competitive MLPs out there when it comes to raising capital.
Fiscal fitness translates directly into reliability. Enterprise has the longest streak for consecutive distribution increases at 37 straight quarters. That's more than nine years, and includes the Great Recession when many, many companies cut or held flat their quarterly payouts.
Yes, that's all in the past, but Enterprise has also established a quarterly routine of covering its distributions. This means when it comes to actually paying out all that cash, quarter after quarter, Enterprise isn't robbing Peter to pay Paul. It's got it covered.
Take a look at this third-quarter data to see how Enterprise stacked up against a few of its peers in this regard:
Enterprise Products Partners
Energy Transfer Partners
Phillips 66 Partners
Boardwalk Pipeline Partners
In theory, an MLP should always cover its distribution, but as Boardwalk Pipeline Partners shows, that is not necessarily the case.
Enterprise, on the other hand, generates a ton of cash, pays out a ton of cash, and also has the strongest coverage ratio in this group. Again, this is routine, and it's why Enterprise is one of the most reliable MLPs out there.
3. Project pipeline
The past looks great, but without a compelling portfolio of growth projects, the market will not stay interested. Enterprise currently has $7.5 billion in ongoing projects, $4.5 billion of which comprises projects that are expected to come online in 2014.
The partnership's growth story remains as diverse as its business model. The ATEX Express pipeline slated to begin service in the first quarter of 2014 will deliver natural gas liquids from the Marcellus Shale to the Gulf Coast. Its Seaway pipeline expansion will boost crude volumes flowing to the coast from Cushing, Okla. Its ECHO storage terminal project will give all the new crude flowing into Houston somewhere to sit before being processed.
In the meantime, construction crews will continue to build one of the world's largest propane dehydrogenation facilities, slated to come online in 2015, so that Enterprise can turn large volumes of propane into propylene for its petrochemical manufacturing customers.
Diversity is one of Enterprise's biggest strengths, and it looks like the future holds more of the same.
Enterprise Products Partners is never going to be your portfolio's home-run stock, but it gets on base every single time it comes to the plate, and the value of that assurance can't be underestimated.
The article 3 Reasons the Market Still Loves This Dividend Stock originally appeared on Fool.com.Fool contributor Aimee Duffy has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners and Magellan Midstream Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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