When you go hunting for dividend-paying stocks, a tenured growth streak offers a lot of confidence that the company can sustain its payout to shareholders. One stock that fits that bill is Enterprise Products Partners, a midstream energy company that offers a mouth-watering 7.44% dividend.
- EPD is a monster cash producer, which translates to predictable dividend payments.
- The company is trading close to its 2018 share price when revenues and operating income were significantly lower.
- It is a midstream player, which means that it is essential to the energy complex and enjoys long-term contracts.
3 Reasons to Buy EPD
The bull case for Enterprise Products Partners is three-fold. Firstly, it is a monster cash producer. Levered free cash flow has soared from $457 million in 2013 to $6.07 billion last year.
That’s quite a feat because revenues over the same period have climbed more modestly from $47.7 billion to $58.1 billion. It hasn’t been straight line growth, either. During 2019 and 2020, revenues fell by 10.3% and 17.0% respectively. But in the past two years they rebounded significantly, up 50.0% and 42.6% respectively. The gigantic cash flows the company has been able to produce consistently has translated to a steadily growing and reliable dividend for investors.
A second reason to entice investors is the company is trading close to its 2018 share price, when revenues were $36.5 billion for the year and operating income was about 30% lower. This is a company to buy for dividend income more so than share price appreciation.
For context, the share price in 2012 was around the same level as it was in 2018 as it is now! During that time period, EPD shares have seen highs near $40 per share in 2014 and lows of around $14 per share during the COVID crash in 2020.
The third reason to support an EPD investment thesis is the company’s position in the industry. As a midstream player, EPD’s 50k of pipelines and natural gas and oil storage facilities are “essential” to the energy complex. It enjoys fixed-fee contracts that produce stable revenues so, when energy prices crash during Covid, for example, EPD had much greater visibility into its top line forecasts than drillers do.
How To Turn $35,000 Into $100,000 In 10 Years
With all that said, what would it take to turn $35,000 into $100,000 in ten years? If we owned $35,000 worth of EPD stock that would translate to 1,338 shares. Now if we received 7.44% each year, we would end up with $26,040 in dividends over the next decade. So our $35,000 would turn into $61,040 with no share price appreciation.
To squeeze out an extra $39,000 of capital appreciation and turn $35,000 into $100,000, we would need the 1,338 shares to rise by an additional $29 per share. The big question is can EPD rise from $26 per share to $55 per share over the next 10 years?
We think it’s possible because supply chains remain fractured and capital investment has been stunted following the pandemic as well as from the knock-on effects of Russia invading Ukraine. With limited supply coming online, EPD stands to benefit over the long-term and we would be surprised if the company’s share price does not reach new highs and then some over the next decade.