EPD: A Pipeline to… Somewhere

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Enterprise Products Partners (EPD 0.70%), a company that operates a frankly astonishing network of over 50,000 miles of pipeline across 27 states, is often regarded as a reliably… present stock. It’s not exactly a rocket ship, more of a very long, slightly dented train. Over the last five years, it’s managed a 68% rally and a total return of 141% after reinvesting distributions. Which, in the grand scheme of things, is rather less improbable than, say, a spontaneously appearing teapot. Let’s see if this particular train keeps chugging along, shall we?

How Fast Is This Pipeline, Exactly?

Enterprise Products, like many of its pipeline brethren, charges companies involved in the extraction and refinement of natural gas, natural gas liquids (NGLs), crude oil, and various other refined products a fee to move their stuff through its pipes. It’s a “toll road” model, as they say. The beauty of this is that it’s largely immune to the whims of commodity prices. It doesn’t much care what is flowing through the pipes, only that something is. (Though, one imagines, a sudden surge in liquid chocolate would be welcomed.) This generates a stable, if not wildly exciting, profit.

Enterprise Products is a master limited partnership (MLP), which is a bit like a slightly more complicated version of a regular company. Instead of dividends, they distribute a “return of capital” combined with income, which is, apparently, tax-efficient. (The intricacies of tax efficiency are best left to accountants and people who enjoy staring at spreadsheets for extended periods.) It currently pays a forward yield of 5.9%, and has been raising its payout for 28 consecutive years. That’s a lot of years. (Consider the number of Tuesdays that have occurred in the last 28 years. It’s… substantial.)

Midstream MLPs need to ensure their annual distributions are comfortably covered by their distributable cash flow (DCF). From 2020 to 2024, Enterprise Products’ DCF rose from $6.41 billion to $7.84 billion, while its distribution coverage ratio expanded from 1.6x to 1.7x. Its earnings per unit (EPU) also increased from $1.71 in 2020 to $2.69 in 2024. These numbers, while perfectly respectable, don’t exactly scream “revolution.” They whisper “steady progress.”

That stable growth has been driven by expansion of its pipelines across the Permian Basin, the Neches River, Morgan’s Point, and other locations. It also acquires smaller pipeline operators, though it’s not expanding quite as aggressively as its larger rival, Energy Transfer Partners (ET 0.37%). This is, perhaps, a sensible decision. Aggressive expansion, after all, is how empires are built… and then usually fall apart. Enterprise Products, by being less aggressive, has significantly less debt than Energy Transfer Partners. (Debt is, of course, a bit like a shadow. It follows you everywhere and can get rather large if you’re not careful.)

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Where Will Enterprise Products’ Stock Be in Five Years?

Analysts expect Enterprise Products’ EPU to grow at a 5.6% CAGR to $3.35 from 2024 to 2028. If it maintains that growth rate through 2031, its EPU will rise to $3.94. If it continues to trade at 13 times its current-year EPU, its stock price could increase about 40% to $52 over the next five years. It should also continue to raise its annual distributions. (This is all, of course, assuming the universe doesn’t decide to rewrite the laws of physics. Which, statistically speaking, is not entirely out of the question.)

Enterprise Products won’t generate any life-changing gains, but it should remain a stable, evergreen play in this frothy and unpredictable market. It should also become more appealing to income-oriented investors if interest rates continue to decline through the end of the decade. (Though, frankly, predicting interest rates is a bit like predicting the behavior of a particularly moody cat. Good luck with that.) In short, it’s a pipeline. It moves things. It’s remarkably, reassuringly, there.

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2026-02-17 20:14