Enterprise Products Partners: 5.9% Yield And Quarterly Increases Fueled By Exporting

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About: Enterprise Products Partners L.P. (EPD)
by: Steven Fiorillo
Summary

EPD is a dividend investor's dream with a 5.9% yield, 21 years of dividend growth, and 59 consecutive quarters of dividend increases.

EPD’s 58.69% revenue and 66% net income increases over the past two years should continue their trends and provide enough fuel to generate share appreciation and future dividend growth.

By the end of 2020, EPD will add significant capability to its exporting facilities to capture a nice slice of the growing exports from the U.S.

Investors may recognize significant share appreciation in addition to a healthy dividend from EPD over the next several years.

Enterprise Products Partners L.P. (EPD) had some major announcements this week which complement my opinions of where the next growth spurt in energy will take place. I have been bullish on MLPs for the past few years as the need for transporting fossil fuels has increased and is showing no signs of slowing down. EPD in my opinion is one of the best MLPs for someone to invest in. EPD is a diverse midstream giant which operates pipelines, storage, natural gas processing, fractionation and import/export facilities across the U.S. The global population is expected to grow by almost 2 billion people from 2020 to 2050 which sets up well for midstream companies with export facilities. EPD just announced it will begin service on Orla 3 and add additional expansion projects at its Houston Ship Channel Terminal. I believe that this will fuel EPD's revenues which will translate to enhanced quarterly dividend increases in addition to share appreciation. By the end of Q2 2021, which is two years away, my prediction is EPD could see its shares rise to previous highs of around $40 per share in addition to another eight quarterly dividend increases. That's roughly 33% share appreciation while getting a raise and a payout every quarter to wait. EPD is a dividend investor's dream with dividends and growth gushing through its pipes.

(Source: EPD Presentation J.P Morgan Energy Conference)

EPD's business overview

EPD is an integrated midstream giant with over $57 billion in assets at the close of fiscal year 2018. The company operates over 49,000 miles of natural gas, crude oil, refined products and petrochemical pipelines. It has capacity for 260 million barrels of natural gas liquids, refined products and crude oil in addition to 14 billion cubic feet of natural gas storage. EPD operates 26 natural gas processing plants and 23 natural gas liquid and propylene fractionators. While storage, processing, fractionation and transportation of fossil fuels is EPD's focus, it has been quite diligent in expanding into the import and export side of energy as well. The company currently has 18 deepwater ship docks which can load multiple types of products including crude, natural gas liquids and ethane across its Houston Ship Channel, Beaumont, Seaway Texas City, Freeport and Morgan's Point locations.

EPD has been firing on all cylinders with revenue and net income increasing year over year aided by an increased demand for energy and its organic growth projects. From the end of 2016 to the end of 2018, EPD has increased its revenue by 58.69% and net income by 66%. Revenues have increased from just over $23 billion in 2016 to over $36 billion at the end of 2018. Net income has increased from just over $2.5 billion in 2016 to over $4.2 billion in 2018. All revenue segments have increased sequentially year over year and this trend should continue in 2019 as the global demand for energy continues to increase due to further industrialization of third world countries and an increasing human population.

(Source: Steven Fiorillo) (Data Source: EPD 2018 Form 10-K)

(Source: Steven Fiorillo) (Data Source: EPD 2018 Form 10-K)

EPD begins service on Orla 3

On July 9th, 2019 EPD announced that service recently began on the third train at its Orla cryogenic natural gas processing plant in Reeves County, Texas. Placing the final processing unit online at the Orla facility increases EPD's natural gas processing capacity to 900 million cubic feet per day. This will allow the company to produce more than 140,000 barrels per day of natural gas liquids. Enterprise now has the capability to process 1.3 billion cubic feet of natural gas and produce approximately 200,000 barrels per day throughout the Permian Basin. This addition couldn't come at a better time as it will fuel EPD's expanding exporting capabilities.

EPD's Houston Ship Channel Terminal is expanding

On July 8th, 2019, EPD announced three new expansion projects at its Houston Ship Channel. The company's capacity to load liquefied petroleum gas, polymer grade propylene, and crude oil from its Enterprise Hydrocarbon Terminal. Prior to this announcement, EPD's loading capacity at the Houston facility was approximately 660,000 barrels per day. It had announced a previous project which is currently under construction to add 175,000 bpd of loading capacity which will be completed in Q3 of 2019. The three new expansion projects which were just announced will increase the facility's loading capacity by another 260,000 bpd and are expected to come online in Q3 of 2020. If these projects stay on schedule by Q4 2020, the Houston Ship Channel will have the capacity and capabilities to load almost 1.1 million bpd of liquefied petroleum gas, which is approximately 33 million barrels per month or 396 million barrels per year.

The devil is always in the details and part of the expansion will include an eight dock at the Houston Ship Channel. This will add approximately 840,000 bpd of loading capacity for crude oil. This will increase EPD's export capability of crude to 2.75 million bpd which is almost 83 million barrels per month and 996 million barrels per year. Service of the new dock will accommodate a Suezmax vessel, the largest ship class that can navigate the Houston Ship Channel, which is expected to come online in Q4 of 2020.

EPD is also capitalizing on the record demand for polymer grade propylene from international markets and is adding refrigeration facilities at the Houston Ship Channel complex. This will allow EPD to load up to an incremental 67,200 bpd of fully refrigerated polymer grade propylene. This expansion project adds diversification from other export facilities as customers will be able to co-load fully refrigerated polymer grade propylene and liquefied petroleum gas on the same vessel. This project is also expected to come online in Q4 of 2020 making 2021 a very exciting year for EPD.

(Source: EPD Presentation J.P. Morgan Energy Conference)

Global Energy Picture and Prediction

Recently China's Ministry of Commerce issued a second batch of quotas for non-state crude imports. This announcement permits 56.85 million mt of crude imports which is a 377% increase from the same batch in 2018. In April, China also saw its biodiesel imports increase 194.2% as it imported 38,669.1 mt of biodiesel. The EIA is predicting that the United States will become a net energy exporter after 2020 just as EPD's expansion projects come online. BP p.l.c (BP) is predicting that the global energy demand will continue to increase through 2040, which will be led by the two largest nations China and India. Earlier this year the European Commission announced that over the next five years, the EU will double its annual LNG imports from the U.S.

In 2018, Saudi Arabia exported 7.1 mmbpd of crude while the U.S exported just under 2 mmbpd. EPD is projecting that U.S. crude exports will reach 8 mmbpd by 2025 which sets up well for its integrated midstream operations. As exports increase, so will the amount of crude which needs to be transported to the export facilities. EPD should recognize increased revenue from the transportation and storage of crude in addition to additional revenue from its increased shipping capabilities. All of this growth should provide continued growth for the dividend and help the share price appreciate.

(Source: EPD Presentation J.P. Morgan Energy Conference)

EPD's Dividend

If you love dividends, there is a good chance EPD is already in your portfolio. It has a dividend yield of 5.9% with 21 years of consecutive growth. Most companies with this type of dividend growth increase their dividend on an annual basis. For the past 59 quarters, EPD has increased its dividend consecutively making it a dividend seeker's dream. Not many companies give you a raise every quarter which adds up when you think about compounding interest. EPD should have enough organic growth projects in its pipeline to keep its track record of larger than average dividends with quarterly increases flowing through its pipes into your portfolio.

(Source: Seeking Alpha)

Conclusion

I am bullish on MLPs in general and EPD is a true gem within the sector. This is an organization which has increased its revenues by 58.69% and net income by 66% over the past two fiscal years while giving shareholders eight consecutive quarterly dividend increases. I believe the company's organic growth projects will pay off in spades as the global energy demand increases. With 21 years of dividend growth and a healthy pipeline of organic projects, EPD should have all the firepower it needs to generate healthy returns for shareholders. In my opinion, EPD will continue its quarterly dividend increases and continue its uptrend with revenue and net income generated from operations. I can see the share price also appreciating to previous highs around that $40 mark over the next few years. This is an organization I am happy to own and reinvest the dividends.

Disclosure: I am/we are long EPD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. Investors should conduct their own research before investing to see if the companies discussed in this article fits into their portfolio parameters.