Enterprise Products Partners (EPD)

The second stock we’ll look at is a midstream energy company. Like the finance sector, the energy sector has long been known for offering high dividends. Enterprise Products Partners supports its own dividend with operations in the collection, transport, storage, processing, and export of hydrocarbon products, including crude oil, refined petroleum, natural gas, and natural gas liquids. High prices in the energy sector over the past year and more have supported Enterprise’s stock price; where the S&P 500 is down 12.5% year-to-date, EPD stock has gained 20% in that same time.

Enterprise moved to increase its asset network recently, and in January the company announced that it had entered an agreement to acquire Navitas Midstream. This move brought more than 1,700 pipeline miles and over 1 billion cubic feet per day of natural gas processing capabilities into Enterprise’s network. The transaction cost Enterprise $3.25 billion in cash, and was completed in February.

The company’s revenues have been consistently increasing, with 5 sequential gains since bottoming out in 2Q20. The last quarter reported was 4Q21, in which the top line came in at $11.65 billion, up 65% year-over-year. Quarterly EPS was 47 cents, missing the 54-cent forecast but more than tripling y/y. For the full year 2021, Enterprise reported $4.6 billion in net income, delivering an EPS of $2.10 per share. These full-year results were up significantly from the 2020 figures, with net income growing 21% and full year EPS growing 22%.

Of particular interest to dividend investors, Enterprise’s free cash flow in 2021 grew y/y from $2.7 billion to $6.3 billion. This is the metric that supports the dividend, and earlier this month Enterprise declared its next common share dividend payment at 46.5 cents, payable on May 12. This payment annualizes to $1.86 and gives a yield of 7%. Enterprise has a long history, 13 years, of slowing growing its common share dividend payment.

Justin Jenkins, 5-star analyst with Raymond James, is bullish on Enterprise, writing: “EPD’s unique combination of asset integration, balance sheet strength, and ROIC track record remains best in class. Further, said track record is more relevant than ever in the context of the recent Navitas deal. We see EPD as arguably best positioned in midstream from a volatility vs. recovery perspective — and buybacks remain an upside lever in 2022+. Meanwhile, EPD still trades at an attractive ~7% yield and a historically discounted ~9.5x 2023E EV/EBITDA (~11.5x 5-year average).”

“With a healthy outlook and a compelling entry point,” Jenkins rates EPD a Strong Buy along with a $30 price target. Shares could appreciate ~17%, should the analyst’s thesis play out in the coming months.

Wall Street is in broad agreement with the bull here, as evidenced by the 7 to 2 split in the recent share reviews, favoring Buys over Holds and backing a Strong Buy consensus rating. The stock is selling for $25.70 and the $30.13 average target is practically the same as Jenkins’ objective.