Make This Income Play First Thing Tomorrow When Markets Open

Shah Gilani Sep 04, 2023

We hope you’re enjoying the Labor Day holiday today. Though U.S. stock markets are closed, I still wanted to give you an income stock opportunity that I thought was too good to pass up, to help hedge against whatever the market might throw at us this week.

In the last several Monday watchlist installments, I’ve focused on a wide range of closed end funds to add income to your portfolio. Today, I’m going to switch things up and focus on master limited partnerships (MLPs).

In case you’re not familiar with MLPs, they are publicly listed limited partnerships that trade on a national securities exchange. They combine the tax benefits of a private partnership with the liquidity of a publicly traded company.

In the case of an MLP, the general partners manage the day-to-day operations, while the limited partners (that’s you and me) purchase shares in the MLP and provide capital in return for cash distributions from the entity’s operations.

Most MLPs focus on natural resource-related activities, including oil, gas, coal, timber, and commodities transport, and today’s watchlist candidate is no different.

Founded in 1968 and based in Houston, Texas, Enterprise Products Partners L.P. (EPD) is a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals.

The partnership’s assets currently include more than 50,000 miles of pipelines; over 260 million barrels of storage capacity for NGLs, crude oil, petrochemicals and refined products; and 14 billion cubic feet of natural gas storage capacity.

Its services include: natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage and marine terminals; crude oil gathering, transportation, storage and marine terminals; petrochemical and refined products transportation, storage and marine terminals; and a marine transportation business that operates on key U.S. inland and intracoastal waterway systems.

On August 1, 2023, the company reported Q2 2023 results that included revenue of $10.65 billion and distributable cash flow (DCF) of $1.7 billion.

For us, as income investors, it’s that second figure (DCF) that we’re interested in, because as the name suggests, that’s the cash flow that can be distributed to shareholders.

Speaking of which, distributions declared with respect to the second quarter of 2023 increased 5.3% to $0.50 per common unit, or $2.00 per common unit annualized, compared to distributions declared for the second quarter of 2022.

Additionally, the partnerships DCF of $1.7 billion provided 1.6x coverage of the distribution declared with respect to the second quarter of 2023. I like that because it means EPD can increase the distribution in the future. In fact, Enterprise Products has raised its distribution to unit holders for 25 years in a row.

At the current price, EPD is delivering a healthy forward yield of 7.46%. You can’t get that in Treasuries or CDs right now, even with higher interest rates, making this an extremely choice income play.

Keep an eye on your inboxes this week for more opportunities, as always.

Leave a Reply

Your email address will not be published. Required fields are marked *