Is Enterprise Products Partners Stock a Buy Now?

Enterprise Products Partners (NYSE: EPD) is a leading participant in the U.S. midstream sector. But it isn't the largest player, it doesn't have the highest yield, and it doesn't offer the longest history of regular dividend increases.

Still, dividend investors will want to take a close look at this midstream giant. It offers a low-risk, high-yield opportunity, especially if you buy right now.

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What does Enterprise Products Partners do?

Enterprise Products Partners operates a midstream energy business. The midstream sits between the upstream (drilling for oil and natural gas) and the downstream (processing oil and natural gas). Midstream companies focus on moving oil and natural gas around, getting it from the places where it is drilled to the places where it is processed and/or consumed in some fashion. Businesses like Enterprise are paid fees for providing this service.

Image source: Getty Images.

This is an important factor to consider since the upstream and the downstream tend to be highly volatile because of the revenue impact from commodity price volatility. Enterprise doesn't care that much about the price of the products it moves, it is more concerned with the volume of product it moves. So long as demand for Enterprise's services is strong it will perform fairly well financially. The energy sector really can't function without using the assets, such as pipelines, owned by midstream companies.

While economic uncertainty is high at the moment, Wall Street is volatile, and oil prices are relatively weak, Enterprise's business model still manages to push through the headwinds. That is one of the big reasons investors should find this master limited partnership (MLP) attractive right now.

What are you getting when you buy Enterprise?

The first thing that income investors will note with Enterprise is its roughly 7.1% distribution yield. That's not the highest you can find in the midstream sector, but it is well above the S&P 500's (SNPINDEX: ^GSPC) average yield of about 1.3% and the average energy company's yield of 3% or so. So, all in, Enterprise is offering an attractive yield.

The second fact that will interest dividend investors is that Enterprise has increased its distribution annually for 26 consecutive years. While not the longest streak in the midstream space, it is still a very impressive number. And, notably, it includes increases through the Dot.com crash, the Great Recession, the energy downturn in 2016, and the upheaval of the coronavirus pandemic. The distribution history offers further proof of Enterprise's resilience.

Data by YCharts.

A third major reason to like Enterprise right now is the fact that the distribution is sitting on a strong foundation. Enterprise's balance sheet is investment-grade rated. That means it has room for additional leverage to help it manage hard times. The distribution is also covered 1.7x over by the distributable cash flow in 2024, meaning there's ample room for adversity before taking on extra leverage would be an issue. In fact, given the robust coverage number, it seems highly likely that the distribution will increase even further in the future.

A reliable income stock worth buying today

If you are a dividend investor looking for an opportunity, high-yield Enterprise is worth a deep dive, given its long list of positives. That's doubly true when you see that it has $7.6 billion worth of capital investment projects in the works that will add to its distributable cash flow in the coming years. So not only is this high yield midstream player well positioned today, it is likely to be even better positioned tomorrow.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.