Enterprise Products Partners (NYSE: EPD) offers investors the best of both worlds. The master limited partnership (MLP) pays a very high-yielding distribution (recently over 7%) and has a sparkling growth record. The company has raised its distribution twice this year (by 5% overall), extending its growth streak to 26 consecutive years.
The magnificent rise in the MLP's payout seems almost certain to continue. It recently added some expansion projects to its backlog, further extending the clarity on its growth outlook.
Capitalizing on robust demand
The MLP recently announced plans to proceed with a key expansion project along the Houston Ship Channel, to meet strong customer demand for export capacity for natural gas liquids. The company plans to add enough refrigeration at the Enterprise Hydrocarbons Terminal to increase its propane and butane export capacity by about 300,000 barrels per day. The expanded service is expected to begin by the end of 2026.
A big factor driving that project is the company's success in contracting the flexible product capacity at its Neches River Terminal, which is under development in southeast Texas next to its Beaumont East refined products terminal.
Phase 1 of that project includes a new loading dock, an ethane refrigeration train with 120,000 barrels per day of capacity, and a 900,000-barrel refrigerated tank. Enterprise expects Phase 1 to enter service in the second half of next year.
And it continues work on Phase 2, which consists of a second refrigeration train that could carry up to 180,000 barrels of ethane or 360,000 barrels of propane per day. It expects this phase to begin commercial service in the first half of 2026.
These projects fit within the company's existing growth capital spending for 2024 to 2026. The MLP expects to spend between $3.5 billion and $3.75 billion this year, $3.25 billion to $3.75 billion in 2025, and $2 billion to $2.5 billion in 2026.
Enhancing its growth outlook
The addition of these capital projects will help replenish Enterprise Products Partners' construction backlog. The company now has $6.7 billion of projects under construction, about $200 million less than at the end of the first quarter. The decline is due to the recent completion of the Leonidas and Mentone 3 gas processing plants and the Texas Western Products System. It has refilled its backlog with the new Houston Ship Terminal projects.
Given their current completion schedules, the new expansion projects will enhance its ability to project its growth into 2025 and 2026. Enterprise Product Partners now has several projects on track to enter service over the next few years, including new natural gas processing plants, pipeline expansions, and export capacity additions.
That extensive backlog of commercially secured fee-based projects "provide visibility to future earnings and cash flow growth," said CEO Jim Teague in the second-quarter earnings press release.
The company will likely continue adding projects to its backlog. It has several under development, including capacity expansions and large-scale capital projects like its Sea Port Oil Terminal. The latter received its deepwater port license earlier this year.
The MLP's growing cash flow should enable it to continue increasing its payout. Its extremely strong financial profile provides lots of flexibility to fund expansion and its distribution.
A low payout ratio (a little more than 50% of its adjusted cash flow from operations over the past year) enables management to retain significant cash for expansions. It also has a very conservative 3.0 leverage ratio, adding to its funding flexibility.
More growth ahead
Enterprise Products Partners continues to find new expansion opportunities, enhancing and extending its long-term growth outlook, which now has increased visibility into 2026. Because of that and its strong financial foundation, the company should have plenty of fuel to continue growing its high-yielding distribution for at least the next few years.
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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
This Magnificent Ultra-High-Yield Dividend Stock Continues to Pump More Fuel Into Its Growth Engine was originally published by The Motley Fool