Enterprise Product Partners, Yielding Almost 5%, Looks Attractive

Summary

• Strong record of both asset, margin and distribution growth.
• A well positioned and diversified US energy infrastructure business.
• Likely $6 billion project spend signals management’s optimism.
• Yielding nearly 5%, with multi-year growth outlook, the stock looks attractive.

Enterprise Product Partners (NYSE:EPD) is well positioned in US energy infrastructure, with an enviable growth record in both its asset base and cash distributions. Recent share price weakness on the back of lower crude oil prices presents an opportunity for income investors with a multi-year growth horizon. The DCF analysis below represents my current outlook for EPD illustrating that units are currently trading at approximately a 15% discount.

Rapid infrastructure growth, margin progression & cashflow, drives enviable distribution record

Since its 1998 IPO, Enterprise Product Partners has grown its energy infrastructure asset base from $715 million to $43 billion, the result of both successful organic and acquisition growth strategies. Further, the management team has delivered both margin growth and distributable cash flow growth over the past five years with a strong record of growing its cash distributions, which have now increased for 42 consecutive quarters.

A well diversified and located US asset base, augurs well for long term, stable cash flows

EPD's US asset portfolio is well diversified, both geographically and by business segment which adds stability and predictability to the business' cash flows. This is what I believe is probably the most important for investors to consider currently. The business consists of around 51,000 miles of natural gas, crude oil, refined products and petrochemical pipelines, some 14 billion cubic feet of natural gas storage, 24 natural gas processing plants plus 22 NGL and propylene fractionators, 6 offshore hub platforms and around 200 tow boats and barges, all located in the US. Importantly, the management team and affiliates have a high ownership percentage, at 36%, which augments the long term investment strategy of the business.

Capex plans signal continued management optimism, despite WTI in the mid $40's

In the current very low oil price environment - with WTI in the mid $40's - when virtually all Exploration & Production "E&P" companies are cutting their capex plans significantly, EPD still expects to spend around $6 billion over the coming two years on organic, homegrown projects. This should drive new cash flows and fund annual distribution growth of around 5-6%. Importantly, EPD's balance sheet can support this and should allow the company to weather the current commodity price storm much better than its E&P peers as shown in the Levered Return's table below.

Dividend yield approaching 5%, attractive for yield investors

With the stock having dropped back recently towards $31 per unit and my estimate of FY'15 earnings of around $1.9 earnings per unit driving a distribution of $1.5 per unit, EPD's well covered distribution yield is approaching 5%. I believe this will be attractive for yield seeking investors looking for a multi-year growth stock.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in EPD over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.