Forget Oil Majors: This Midstream Stock Pays a Better Dividend
When it comes to energy investing, integrated oil giants like Chevron and ExxonMobil often steal the spotlight. They are top picks for dividend investors thanks to their impressive dividend growth streaks of 39 and 43 years, respectively.
While these integrated giants have impressive dividend histories, they don’t offer the highest yield for income-focused investors. If you’re searching for superior yields and stable cash flows, consider midstream powerhouse Enterprise Products Partners (EPD +0.64%). Here’s why.
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Enterprise Products Partners is built for long-term stability
While upstream oil drillers are vulnerable to price swings in commodity markets, Enterprise Products Partners serves as a highway system for moving oil and gas across North America. It has a massive infrastructure footprint that includes 50,000 miles of pipelines, 300 million barrels of liquid storage capacity, and 21 deep-water docks.
The business is built for stability. Roughly 80% of its gross operating margin is fee-based, and the company earns fees based on the volume of product moved rather than the spot price of oil and gas. Additionally, about 90% of its long-term contracts have escalation provisions to mitigate the effects of inflation. This business model helps shield it from price volatility, providing stable cash flows.
Enterprise Products Partners
Today’s Change
(0.64%) $0.24
Current Price
$37.99
Key Data Points
Market Cap
Day’s Range
$37.76 – $38.19
52wk Range
$30.01 – $40.16
Volume
3.3M
Avg Vol
3.3M
Gross Margin
12.98%
Dividend Yield
5.80%
In the second quarter, the company delivered stellar results, generating a record $2.8 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA), along with earnings per share (EPS) of $0.84, ahead of consensus estimates.
The strong results were boosted by robust global demand for U.S. energy, as total pipeline-equivalent volumes rose 8% to 14.7 million barrels per day (MMBPD), while marine terminal volumes surged 33% to 2.8 MMBPD across its docks. The company is building on its strong position, including several new processing plants in the Permian, a region that has been a massive growth driver for it.
Enterprise boasts an impressive track record of rewarding investors
Enterprise Products Partners has an impressive dividend yield of 5.9%, well above Chevron’s (3.7%) and ExxonMobil’s (2.6%). This dividend is supported by a sound business and its corporate structure as a master limited partnership (MLP).
As a pass-through entity, Enterprise does not pay corporate income tax; instead, it passes profits, losses, and deductions directly to unitholders. While this provides great tax-deferral benefits, investors should note that they will receive a Schedule K-1 at tax time, which can complicate tax filing.
That said, Enterprise Products has an impressive yield and an exceptional track record of raising its distribution for 28 consecutive years, making it a solid dividend stock for investors seeking income from their investment portfolios today.
