Enterprise Products Partners (EPD) stock price declined to a decade low during the pandemic because of low oil and natural gas prices. Demand and prices plummeted as governments curtailed commercial activity. However, market demand has recovered while supply is still constrained for several reasons. Consequently, prices have soared. Enterprise Products’ stock price has almost returned to its pre-pandemic high despite higher revenue and earnings. The stock is undervalued, with a 7.5%dividend yield. Investors should take a more extended look at this dividend growth stock.
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Overview
Enterprise Products Partners L.P. (EPD) is an American pipeline company founded in 1968 and headquartered in Houston, Texas. The company is organized as a master limited partnership (MLP). It operates through four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services. Today, the company has a market capitalization of approximately $52.2 billion and currently trades hands for a little under $25 per share.
The pipeline giant owns about 50,000+ miles of pipelines for natural gas, oil, refined products, and petrochemicals. The company has a storage capacity of about 260+ million barrels of oil and refined products and 14 billion cubic feet of natural gas. In addition, Enterprise Products owns 24 natural gas processing facilities, 18 fractionators, seven splitters, 11 condensate distillation facilities, and 19 deep water docks.
Total revenue was $40,807 million in 2021 and $55,906 million in the last twelve months.
Enterprise Products (EPD) Stock Price and Fundamentals
Value
Stock Price
$24.81
Market Capitalization
$53.98 B
PE Ratio
10.26X
Dividend Rate (FWD)
$1.90
Dividend Yield (FWD)
7.66%
Payout Ratio (FWD)
81.5%
Enterprise Products Partners Dividend Analysis
Dividend Growth
As a dividend growth stock, Enterprise Products has been raising its dividend for 25 years, making it aDividend Champion. According toPortfolio Insight*, Enterprise Products’ past 5-year dividend growth average is about 2.51%, and the previous 10-year average is approximately 4.12%. Also, note that the most recentdividend increasewas only 1.12%. This slight increase is concerning as a dividend growth investor because we would like to see companies continue to grow its dividend faster than inflation. But at the same time, the firm is not trying to boost the dividend without supporting cash flow and earnings.
Let’s remember that EPD stock continued to pay its dividend during the most challenging period in the last 100 years. While many businesses werecutting or suspending their dividendpayments, EPD continued to pay its dividend. That is very impressive, especially because the oil industry was hit very hard in 2020.
Dividend Yield
The company has a whopping dividend yield of 7.60% as of this writing. This value is an excellent starting yield for those income-driven investors—especially for those investors who are leaving the bond market looking for higher yields. Income-driven investors may want a 4.5% yield or higher. So EPD meets that criterion easily.
Enterprise Products’ current stock dividend yield is 13 basis points higher than its own 5-year average dividend yield of about 7.47%. I like to look at this metric because it gives me a good idea if a company I am researching is undervalued or overvalued based on the current yield and 5-year average yield. This is because the price and yield inversely correlate with one another. If the price increases, the yield goes lower, and vice versa.
Dividend Safety
Is the dividend safe? We should always ask this question if we are looking for an undervalued dividend growth stock to invest in. This reason is why it is essential to look at thedividend payout ratiobased on earnings and free cash flow (FCF). However, since this is a midstream company structured as an MLP instead of a C-corporation, we must look at distributable cash flow (OCF) per share to determine if the dividend is safe for an investor. Thus, the company translates its profits as distributable cash flow per share instead of earnings per share (EPS) like a conventional corporation.
Analysts predict that EPD will make $3.49 per share in DCF. Using the dividend (distribution) payment of $1.90 per share per year gives a payout ratio of 57% based on DCF. Having a ~58% dividend coverage with a dividend yield of over 7% is exciting.
On another note, capital expenditures have been decreasing since 2019. The company spent ~$4.532 billion in 2019 and only about $2.223 billion in 2021. This decrease helps increase FCF, which makes the dividend that much safer. Or the extra cash can be used to pay off debt.
Revenue and Earnings Growth / Balance Sheet Strength
Now let’s talk about earnings and revenue growth, which are the significant metrics we like to evaluate about a company. Without revenue growth, a company can’t have sustainable earnings growth and cannot continue paying a rising dividend. Since we cover Enterprise Products stock today, we will skip on earnings because it is not relevant for midstream pipeline companies. So instead, we will look at the growth of DCF.
For the past ten years, EPD has had revenue declining at a compound annual growth rate (CAGR) of (-0.82%). The decrease in revenue has to do with sales of assets throughout the years. Also, crude pipelines and services were hit hard because of COVID-19 shutdowns, which hurt 2020 revenues significantly.
Distributable cash flow has grown over time with short-term declines because of the Great Recession, oil price collapse, and the COVID-19 pandemic. The DCF was down from $3.43 per share in 2019 to $2.91 per share in 2020. This decline reversed itself in 2021 to $3.00 per share. Analysts expect Enterprise Products to earn $3.49 in DCF per share in 2022, a significant rebound.
Balance Sheet
Also, the company has a solid balance sheet. Currently, Enterprise Products stock has BBB+/Baa1, a lower-medium investment grade credit rating. The MLP has little debt due until after 2026. The leverage ratio is around 3.1X, below the target range of 3.25X to 3.5X. Also, the company has a high-interest coverage ratio of ~4.92X for an MLP. Generally, this shows me that Enterprise Products stock is a high-quality company with excellent growth prospects and a solid balance sheet.
Stock Valuation
One of the valuation metrics that I like to look for is the dividend yield compared to the past few years histories. I also want to look for a lower P/DCF based on the past 5-year or 10-year average. Furthermore, we like to use the Gordon Growth Model, a variation of the Dividend Discount Model (DDM). I use aGordon Growth Modelanalysis because a business ultimately equals the sum of all the future cash flow that that business can provide. Since we are valuing Enterprise Products stock, we will use P/DCF.
Currently, EPD has a P/DCF ratio of 7.4X based on F.Y. 2021 DCF of $3.49 per share. The P/DCF is very low compared to the past 5-year P/DCF average of ~10X. If EPD were to revert to a P/DCF of 10X, we would obtain a price of $31.36 per share.
Now let’s look at the dividend yield. As I mentioned, the dividend yield currently is 7.60%. Looking at EPD’s 5-year dividend yield average of about 7.47%, there is a potential upside. For example, if EPD were to return to its 5-year average dividend yield, the price target would be $25.32.
The last item I like to look at to determine a fair price is the Gordon Growth Model analysis. I factored in a 9% discount rate and a long-term dividend growth rate of 3%. I use a 9% discount rate because of the high current dividend yield. The projected dividend growth rate is lower than its 10-year average but higher than the most recent increases. This gives us a fair price target of $31.67 per share.
If we average the three fair price targets of $31.36, $25.32, and $31.67, we obtain a reasonable, fair price of $29.45 per share. This gives Enterprise Products stock a possible upside of 18.3% from the current price of a little below $25.
Final Thoughts on Enterprise Products Partners (EPD) – A High Yield Stock
Enterprise Products Partners stock is one of the best midstream companies to pick from in today’s market. The company has an excellent starting dividend yield of 7.60%, and it is roughly 18.3% undervalued to its fair price of $29.45 per share. This represents an exciting and undervalued company in today’s market. In addition, EPD stock continues to invest in significant capital projects, providing investors with long-term growing cash flow.
Thanks for reading Enterprise Products Partners (EPD) – A High Yield Stock!
Disclosure: Felix is long EPD
You can also read Merck (MRK) – Pharma Dividend Growth by the same author.
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My name is Felix Martinez, and I am a Dividend Growth Investor who has invested in dividend growth stocks for the past seven years. I also run a YouTube channel called FiscalVoyage. I have written for SeekingAlpha.com as well as SureDividend.com. I focus on undervalued dividend growth stocks with capital return and dividend income potential. Make sure to follow me on my YouTube Channel. See you there.
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EPD offers quarterly payouts and has a solid dividend yield of 7.79%. Wall Street analysts favor EPD stock. Its stock carries a Strong Buy consensus rating based on 10 Buy and one Sell recommendations. Moreover, these analysts' average price target of $31.36 implies 30.02% upside potential.
Valuation metrics show that Enterprise Products Partners L.P. may be undervalued. Its Value Score of A indicates it would be a good pick for value investors. The financial health and growth prospects of EPD, demonstrate its potential to outperform the market.
Looking at risks associated with EPD specifically, the company is a master limited partnership (or MLP), which means that EPD might not be the best stock to invest in long-term — say, for retirement funds or future savings — because these MLPs come with tax issues not found in your typical non-MLP corporations.
The 20 analysts offering 12-month price forecasts for Enterprise Products Partners LP have a median target of 31.00, with a high estimate of 36.00 and a low estimate of 27.00. The median estimate represents a +18.75% increase from the last price of 26.11.
Enterprise Products Partners's upcoming ex-dividend date is on Jan 29, 2023. Enterprise Products Partners shareholders who own EPD stock before this date will receive Enterprise Products Partners's next dividend payment of $0.49 per share on Feb 13, 2023.
ET's Price Growth Rating (40) in the Oil And Gas Pipelines industry is in the same range as EPD (47). This means that ET's stock grew similarly to EPD's over the last 12 months. ET's P/E Growth Rating (9) in the Oil And Gas Pipelines industry is somewhat better than the same rating for EPD (55).
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Based on analyst ratings, Enterprise Products Partners's 12-month average price target is $31.00. Enterprise Products Partners has 20.44% upside potential, based on the analysts' average price target.
Enterprise Products Partners has received a consensus rating of Buy. The company's average rating score is 2.80, and is based on 6 buy ratings, 3 hold ratings, and no sell ratings.
Historical dividend payout and yield for Enterprise Products Partners (EPD) since 2000. The current TTM dividend payout for Enterprise Products Partners (EPD) as of January 13, 2023 is $1.90.
Briefly, in order to be eligible for payment of stock dividends, you must buy the stock (or already own it) at least two days before the date of record and still own the shares at the close of trading one business day before the ex-date.
Yes – the IRS considers dividends to be income, so you usually need to pay taxes on them. Even if you reinvest all of your dividends directly back into the same company or fund that paid you the dividends, you will pay taxes as they technically still passed through your hands.
After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.
You do not receive any dividends if you are holding on to stock futures. Then why should the adjustment happen to futures price. The answer lies in the fact that the stock future is a derivative product and its value is derived from the underlying which is the stock price.
It generates stable fee-based revenues from its extensive pipeline network that spreads across more than 50,000 miles, transporting natural gas, natural gas liquids (NGLs), crude oil petrochemicals and refined products.
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Because the price of a security drops by about the same value of the dividend, buying it right before the ex-dividend date shouldn't result in any gains. Similarly, investors buying on or after the ex-dividend date get a "discount" on the security price to make up for the dividend they won't be receiving.
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The York Water Company (NASDAQ:YORW) is the company with the honor of having the oldest, still-active dividend in the world. It's the quintessential dividend stock.
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[Explanation. -- For the removal of doubts, it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.]
EPD pays a dividend of $1.88 per share. EPD's annual dividend yield is 7.3%. Enterprise Products Partners's dividend is higher than the US industry average of 6.21%, and it is higher than the US market average of 3.85%.
Good. A range of 0% to 35% is considered a good payout. A payout in that range is usually observed when a company just initiates a dividend. Typical characteristics of companies in this range are “value” stocks.
Think you could get by on $40,000? You'd need a portfolio of $40,000/0.0375, or about $1.07-million. If you assume a higher dividend yield of, say, 4 per cent, you'd need a portfolio of $40,000/0.04, or $1-million. You can play around with different scenarios on your own.
If you buy on the ex-dividend date or any day after, you won't get the dividend. Conversely, if you want to sell a stock and still get a dividend that has been declared, you need to hang onto it until the ex-dividend day. The ex-date is one business day before the date of record.
Primarily, as Larry Edelson of EdelsonInstitute.com explains, the federal government doesn't tax an MLP's income and losses at the entity level. Instead, they are “passed through” to the shareholders (partners). Thus, a shareholder of EPD stock avoids the double taxation inherent among standard corporate equities.
It's much better to invest in growth stocks over dividend stocks. You're likely earning W2 income, so you don't need more income to pay more taxes with dividend stocks. Further, your goal is to build a large of a capital stack as fast as possible so you can be free sooner.
Introduction: My name is Aracelis Kilback, I am a nice, gentle, agreeable, joyous, attractive, combative, gifted person who loves writing and wants to share my knowledge and understanding with you.
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