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With Steady Long-Term Growth, Enterprise Products (EPD) Should Continue Gushing
Out Profits |
Published:
February 3, 2008
Enterprise Products Partners (NYSE: EPD, $31.40) is among the nation's largest pipeline operators. The
firm owns nearly 900 miles of crude oil pipelines and 33,000
miles of natural gas, natural gas liquids (NGL), and
petrochemical pipelines. Other assets include several gas import
terminals and storage facilities, two dozen processing plants,
and a number of fractionation facilities -- which separate raw
streams of NGL into various products like ethane and propane.
The company also has a network of gathering and processing
facilities concentrated along the Gulf Coast.
Following a series of acquisitions, Enterprise is now one of the
nation's largest publicly-traded energy partnerships. As a
master limited partnership (MLP), the company is generally
exempt from federal income taxes, provided it distributes the
lion's share of its cash flows to shareholders (technically
referred to as unitholders). This special status allows MLPs to
shell out generous payments, although these distributions
typically don't qualify for the reduced 15% dividend tax rate.
As opposed to the "upstream" business of exploration and
production, Enterprise is a "midstream" energy player -- a
sector coveted for its steady cash generation potential. Much of
Enterprise's diverse revenue stream comes from pipeline charges,
which are influenced more by volume flow than by volatile
commodity prices. And the firm's assets are focused in the
nation's most reliable supply basins -- those representing
approximately 90% of the production in the lower 48 states.
Enterprise's network transports 1.8 million barrels of NGL and 7.9 trillion BTUs of natural gas every day.
All of this has translated into a steadily rising stream of
distributable cash flows. Following record financial results in
2006, the company has generated cash flows in excess of $730
million through the first three quarters of 2007. As a result,
management just boosted quarterly distributions to $0.50 per
unit, or $2.00 annually. That marks the 14th consecutive
quarterly increase, and overall the payout has surged by +122%
over the past decade.
And there is plenty more where that came from. Natural gas
consumption isn't slowing down -- management is expecting the
rising volume of gas flowing through its pipelines and
facilities to lead to heavier cash flows down the line.
Increased deepwater drilling and leasing activity in the Gulf of
Mexico also bodes well. Most importantly, the company is also
wrapping up $2.1 billion worth of expansion projects that are
just now coming online and could be key growth drivers going
forward.
Much like a toll road, Enterprise can now sit back and collect a
steady stream of revenues as natural gas flows from producers
into the homes of millions of Americans.
From the beginning of 1999 through the end of October last year,
EPD delivered a jaw-dropping total return of more than +500% -- versus
just +45% for the S&P 500. However, with a sizeable yield of 6.4% and
a good long-term outlook, the units could continue upwards for the next couple of years.
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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