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Enterprise Products Partners – 3 reasons it's the perfect income-generating vehicle

Updated: Dec 3, 2023

enterprise product partners stock analysis

Enterprise Products Partners (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. The company operates through four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.

Market Cap: $54.7b S&P Rating: BBB+

Recent news to know:

- EPD released its Earnings Report on November 1, with an EPS of $0.62 and Revenue of $15.47B, both beating the expectation.

EPD Earnings Report
EPD Earnings Report. Source:

Current Situation and past performance

It is currently trading at a 7.53% dividend yield, which is still higher than the 2008-2009 level. The operating cashflow what I will look at EPD because it is a Master Limited Partnership,

Why the operating cash flow and what are MLPs?

Master Limited Partnerships (MLPs) are publicly listed limited partnerships that trade on a national securities exchange. Most MLPs have general partners and many limited partners (the investors). The general partners manage the day-to-day operations, while the limited partners purchase shares in the MLP and provide capital in return for cash distributions from the entity’s operations.

So as we can see on the chart the Enterprise Product Partners stock price is under the orange line which represents the margin of safety. The total annual return from the last 20 years is 7.3% yearly with the dividends together.

enterprise product partners stock price
EPD stock price and margin of safety. Source:

The current P/E ratio is a very good 10.24. The PEG ratio is 2.93 which is lower than the sector's average.

Now that you got an overview of the company, let's what are the 3 reasons I was talking about.

1. EPD Dividend

As I wrote earlier, EPD pays a 7.53% dividend yield right now and the EPD dividend history is very bright, as the company has been increasing its dividends for over 25 years.

It is slightly lower than the 4-year average, but only by 0.2%. EPD isn’t a yield growth monster that’s why the recent increase was almost 3% and the overall 10-year average growth rate is at 6.41%.

Share buybacks can be a silent killer. If the company does not buy back shares but dilutes them then your investments are worth less over time. It is like a slice of cake where your slice will be smaller if the company dilutes its shareholders.

As you might have expected, EPD buys back shares diligently.

2021 2020 2019 2018

Next, we want to know if the company is capable to maintain its dividends.

The dividend payout compared to their operating cash flow has to be under 75%. In the last 10 years, there were 2 years where this number was higher than 75%. I consider this one a safe dividend-payer company.

Also interesting to see that the EPD stock dividend has outperformed the S&P500. I look just the past 10 years and I can see from the numbers that they paid out twice as much as the S&P500.

2. EPD Stock Forecast and Future Estimates

Based on 2 analysts the estimated future earnings growth rate is 4.35%. Analysts have a scorecard also which tells me that they are 62% of the time right about the estimates and 23% of the time EPD has beaten the estimates.

Another forecast from CNN Business:

EPD Stock Forecast and Future Estimates

The 19 analysts offering 12-month price forecasts for Enterprise Products Partners LP have a median target of 32.00, with a high estimate of 36.00 and a low estimate of 28.10.

The median estimate represents a +26.83% increase from the last price of 25.23.

The current consensus among 24 polled investment analysts is to buy stock in Enterprise Products Partners LP.

3. Fair value

I use the most widely accepted method to calculate the fair value of a company which is the Discounted Cash Flow (DCF). It is based on the premise that the fair value of a company is the total value of its future free cash flows discounted back to today's prices.

I use analysts' estimates of cash flows and assume the company grows at a stable rate into perpetuity.

(Total Equity Value = Present value of next 10 years cash flows + Terminal Value = $40 022 + $42 311= $82 332,67

Equity Value per Share (USD) = Total value / Shares Outstanding = $82 333 / 2 176 = $37,84)

EPD stock fair value
EPD stock fair value. Source:

As you can see, it is Undervalued by 33.3%. The current fair value is $37.84.

Risks and overall takeaway…

I bought Enterprise because of income. The stock price right now is very low, you can buy it with a reasonable margin of safety. The Debt level is the only thing to worry about a little bit but it is quite normal in the MLP sector.

The price is decreasing since 2014 but earnings are growing, in 2021 they earned 29% more than the previous years.

The dividend is increasing, that’s why it is considered a very undervalued company. I’m not expecting any major annual return on the stock price but it is a very good income-generating vehicle.

Speaking about risks, let's look at Debt

EPD's net debt-to-equity ratio (105.6%) is considered high. But EPD's debt is well covered by operating cash flow (30.4%).

Competitors worth taking a look at are ENB and PPL


I hope this analysis will be useful for you.

If you want to learn more about dividends, I encourage you to read my King Guide to Dividend Investing.

New to investing and would like to learn how to master this game?

My Investing Guide for beginners might be the best starting point.

How to make money while you sleep. Guide to investing for beginners

Disclosure: I have holdings in this mentioned company but I have no plans to buy more from this stock within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with this particular company.



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