Many economists, including Nobel Prize-winner Paul Krugman, have pointed out that the stock market only represents a small area of the economy. The market can thrive even while people struggle with financial uncertainty, political strife, and worldwide illness.
Regardless of what economists say, it seemed strange to many that the market could reach new heights while so many consumers struggle. Over the last six months, however, it seems that the market has more closely reflected main street reality. The major market averages have been trending down and an official bear market declared in some indices.
As prices fall, yields rise on dividend-paying stocks. And one in particular, Enterprise Products Partners (EPD), is offering a chunky 6.8% yield. So, is it a buy?
Recent Distribution Payments From Enterprise Products
Enterprise Products has issued two payouts so far this year. In January and April, it declared a distribution payment of $0.465 per share.
Those amounts become more enticing when you look at the company’s share prices during the first and second quarters of fiscal year 2022. During Q1, the price hovered around $21.50. The price was a bit higher during Q2, but shares were still trading at a discount to fair value, averaging close to $24.
EPD has a four-year dividend yield average of about 4.7%. But recently that yield spiked to 6.8%.
That makes Enterprise Products one of the highest yielding stocks in addition to:
- Altria Group Inc. (MO): 6.66%
- ONOEK Inc. (OKE): 5.68%
- Universal Corp. (UVV): 4.96%
- Lamar Advertising Co (LAMR): 4.9%
- Philip Morris International (PM): 4.71%
Anything over 3% is generally considered high. By that standard, Enterprise Products pays out more than twice the amount investors look for when comparing their options.
Enterprise Products Has a History of High Distribution Payments
This isn’t the first time Enterprise Products has distributed exceptional payments to investors. In fact, the company hasn’t paid out less than $1.51 annually since 2003. Annual distribution payments for the last decade have equaled:
- 2012: $2.5325
- 2013: $2.7000
- 2014: $2.4950
- 2015: $1.5100
- 2016: $1.5900
- 2017: $1.6675
- 2018: $1.7150
- 2019: $1.7550
- 2020: $1.7800
- 2021: $1.8000
It also has an attractive valuation at this time. When we ran the numbers, we calculated upside of almost 20% to $33.56 per share.
Should You Buy, Hold, or Sell Enterprise Products?
Energy companies have seen record profits as Russia’s invasion of Ukraine triggered countries to find other sources of oil and natural gas. While higher oil prices have contributed to inflation more broadly, it has also helped energy companies generate higher top line and bottom line figures.
Even after the Russia-Ukraine conflict subsides, governments in Europe and other parts of the world might reconsider whether they want to contribute to Russia’s economy. That could translate to persistently higher normative gas prices.
If you already own shares of Enterprise Products, holding them is probably the smartest move now. Historically, it has been a solid income source with consistent payouts year after year. Even if shares don’t reach the heights of 2014, they should continue paying out dividends of at least $1.50 per year.
Selling now looks like a mistake. There is a good chance the company’s profits will increase with the rest of the oil industry. If shares stay at their current prices, you still get a nice payment every quarter.