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Capture a 6.6% Yield With This
Cash Cow |
Published:
August 1,
2007
Houston-based Enterprise Products Partners (NYSE: EPD, $29.10) is the largest
master limited
partnership (MLP) in the country by market
capitalization. It operates an extensive natural gas and natural-gas liquids
(NGL) network. The Gulf Coast is the most prolific natural gas producing
region in the country, and that's where the majority of the Enterprise's
gathering and processing facilities are located.
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According to the Energy Information
Administration, the U.S. will also need to import increasing amounts of
natural gas and liquefied natural gas to meet growing demand. Here again,
Enterprise's terminals are strategically located in the Gulf Coast region
where the majority of imports will be delivered. Over 90% of Enterprise's
revenue comes from fee-based businesses that can capitalize on these
projected production increases.
In September 2006, the company spun off some of its assets into a new master
limited partnership. Duncan Energy (NYSE: DEP) debuted on the New York Stock
Exchange on January 31, 2007. Duncan now owns a 66% interest in a portfolio
of assets, leaving Enterprise with a 34% interest in those assets.
Dividend: Enterprise has been paying dividends at an
increasing rate since 1998. Its latest quarterly dividend of $0.483 equates
to $1.93 per share annually and gives the stock a yield of 6.6%. The firm's
distributions have increased an average of +11% a year over the past five
years, in line with cash flow. The company maintains around an 80% payout
ratio, which should allow room for future dividend growth. Enterprise has a
generous dividend reinvestment plan, which lets you purchase EPD shares at a
5% discount to current market prices without service or brokerage fees.
Growth Drivers: Formed in 1968, the company has
completed over $11 billion of acquisitions and expansion projects since
going public in 1998. Most recently, the firm's 2004 merger with GulfTerra
more than doubled its size. The company has financed a major portion of
these acquisitions with equity, giving it a debt to total capitalization
figure of just 42%. About 80% of the debt is set for a 16-year term at an
average fixed rate of only 6.2%, giving the firm plenty of financial
flexibility to extend its recent growth streak.
Outlook: Enterprise has its footprint in just about
every aspect of the petroleum and natural gas supply chain, from production
platforms and gathering pipelines to gas processing and natural gas liquids
separation to distribution. Although most of the company's revenue is not
secured by government-regulated tariffs, its diverse operations provide
multiple earnings streams, which help reduce risk.
The company has grown earnings at an average annual pace of +12% over the
past five years. Going forward, EPD's growth will be driven largely by
internal projects that will allow it to expand its capacity to process and
ship natural gas and NGLs.
Earnings are projected to rise +4% this year, another +24% in 2008, and
continue accelerating at a healthy +9% clip over the next five years. Risks
to these projections include an economic slowdown, which could reduce demand
for EPD's services. The company's assets are also vulnerable to hurricanes
and other natural disasters in the area.
Good Investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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