News Analysis date published New: 
Wednesday, March 6, 2013 - 13:00
New Date created: 
Monday, March 11, 2013 - 14:00
New Date last updated: 
Wednesday, March 6, 2013 - 13:00

This "Wide Moat" Energy Company Has Raised its Dividend 34 Times in a Row

Wednesday, March 06, 2013 1:00 PM

A number of energy companies are profiting from the oil and natural gas revolution taking place right now in the United States. But the company I'm going to cover today is unique.

Here's why...

First of all, this company has managed to raise its dividend for 34 consecutive quarters -- or the last eight and a half years.

In fact, the company currently holds the record for consecutive dividend increases among master limited partnerships (MLPs) in the energy sector.

Most energy companies fall short of this kind of track record because their profits rise and fall along with commodity prices.

Not so with this company.

That's primarily because 80% of the company's revenue is fee-based. This is money the company charges for the use of its pipelines, storage facilities and other fixed assets.

The second reason the company has been able to reward shareholders so consistently is that it has the size and positioning to allow it to profit from every link in the supply chain.

For example...

The company gathers natural gas from wellheads from the Rockies to the Gulf of Mexico. It operates gas-processing plants that separate natural gas liquids (NGLs), transports natural gas and NGLs through its pipelines to market hubs, provides storage for NGLs and then sells the finished product to the petrochemical industry.

The company earns fees or "tolls" on every link in the midstream chain. This has allowed it to weather difficult economic times much better than other companies within the energy sector.

Best of all, even after a phenomenal run in which its stock price has nearly tripled since 2009, Enterprise Products Partners (NYSE: EPD) has several projects coming online between now and 2015 that could easily send the stock price soaring another 100%.

During the company's most recent conference call, Chief Operating Officer Jim Teague said 2013 will be the "Year of the Eagle Ford," 2014 will be the "Year of the Pipeline" and 2015 will be the "Year of the PDH (propane dehydrogenation) Plant."

Here's what he means...

  • In 2013, $4 billion worth of new assets is expected to come online and begin generating profits, including the Seaway Crude Oil Pipeline and a third train that can deliver 300 million cubic feet per day to the partnership's natural gas-processing plant in Lavaca County, Texas.

    Enterprise already has the largest asset footprint in the Eagle Ford Shale play that stretches across Central Texas. These new projects will only increase the company's dominance in this lucrative region.

  • In 2014, a number of new pipelines are set to come online, including the ATEX Express Ethane Pipeline -- which will service the Marcellus/Utica shale in Ohio -- and the Mid-America NGL Pipeline Expansion, which will transport natural gas from Colorado to processing facilities along the Texas Gulf Coast.
  • In 2015, the partnership's new propane dehydrogenation (PDH) facility is scheduled to begin production. Enterprise Products Partners recently announced it has long-term contracts (the average duration is 15 years) in place that effectively "sell out" the plant's full production capacity.

In fact, demand has been so great that there is already talk of another PDH facility being built in the near future.

StreetAuthority analyst Amy Calistri added Enterprise Products Partners to her Daily Paycheck portfolio in May 2011. She wrote at the time: "Basically, if you've got energy in North America, Enterprise Products Partners has a way to move it to market and store it."

What was true then is still true today, and her subscribers are up almost 50% on her recommendation so far.

Risks to Consider: Despite its fee-based business model, the company is still subject to commodity prices it cannot control.

Action to Take --> Shares are currently trading near their 52-week highs and at a price-to-earnings (P/E) ratio of 21, which is above the current S&P 500 average of 17.5. So they aren't cheap. Still, the MLP industry as a whole trades at around 28 times earnings, and I think Enterprise Products is a relatively safe bet for investors. The solid 4.6% (and rising) dividend makes this a good buy-and-hold candidate at least through 2015.

P.S. -- Stocks like Enterprise Products Partners are perfect for what Amy Calistri calls a "Dividend Trifecta" strategy. Simply put, it's a three-part approach to dividends that multiplies the effectiveness of every dollar you invest. The plan is specifically engineered for people who want to retire sooner or for those who would like to get a steady stream of extra income now. Go here to learn more...

Chad Tracy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of EPD in one or more of its “real money” portfolios.