Enterprise Products Stock Keeps Falling. Is the Texas-Based Company a Buy on the Dip for Energy Portfolios?

Units of Enterprise Products Partners (NYSE: EPD) have slumped this year and are currently down nearly 12% from their peak in April. That decline has driven up the master limited partnership's (MLP) distribution yield to more than 7%.

The energy midstream company, headquartered in Houston, Texas, has seen its units lose value, even as it nears a major growth spurt driven by a wave of major capital project completions. This near-term catalyst makes the dip an attractive buying opportunity for investors seeking high-octane total return potential.

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The coming growth wave

Despite what the slump in its unit price might suggest, Enterprise Products Partners is having a solid year. The MLP reported a 7% increase in its distributable cash flow during the second quarter, which rose to $1.9 billion. That was enough money to cover its high-yielding distribution, which it has increased by 3.4% over the past year, by a comfortable 1.6 times. This allowed the company to retain nearly $750 million in cash.

The midstream giant has been allocating this surplus cash toward expansion projects to grow its operations and cash flow. The company is on track to complete $6 billion of organic expansion projects in the second half of this year. It has already commissioned two new natural gas processing plants (Orion and Mentone West) in the Permian Basin, which stretches across western Texas and southeast New Mexico. Initial service has also begun at its Neches River Terminal (NRT) in Orange County, Texas. Additionally, Enterprise expects to start up the fourteenth natural gas liquids (NGL) fractionator at its Mont Belvieu, Texas, complex and complete its 550-mile Bahia Pipeline, which will run from the Permian Basin to that complex. These commercially secured growth capital projects will significantly boost Enterprise Products Partners' cash flow in the coming quarters.

Alongside its organic projects, the MLP also recently closed its acquisition of a natural gas gathering affiliate of Occidental Petroleum. Enterprise Products Partners paid $580 million to buy the 200-mile pipeline system that services Occidental's operations across four counties on the Midland Basin side of the Permian. This deal will provide the company with incremental cash flow as it transports Occidental's raw gas output to processing plants. As part of the deal, Enterprise will build a new processing plant (Athena) that it expects to finish next year, providing it with another source of steady cash flow.

More growth and income ahead

Enterprise Products Partners has more growth coming down the pipeline beyond this year's $6 billion organic capital project wave. The company has several other projects under construction that should enter commercial service in 2026. They include two more gas processing plants (Athena and Mentone West 2), phase two of NRT, and an expansion of its Enterprise Hydrocarbons Terminal on the Houston Ship Channel. The MLP expects to spend between $2.2 billion and $2.5 billion to complete these growth capital projects next year.

Meanwhile, the MLP has ample financial flexibility to pursue additional growth capital projects and strategic acquisitions as opportunities arise. It has one of the strongest balance sheets in the energy midstream sector with a low 3.1 times leverage ratio, providing it with ample financial flexibility to pursue new investments. Additionally, it generates a substantial amount of surplus cash after paying its lucrative distribution, which it can reinvest in growth opportunities.

The company's growing cash flows will also give it the capacity to continue increasing its high-yielding distribution. Enterprise Products Partners has increased its payout for 27 straight years, a streak that's unlikely to end anytime soon.

High octane total return potential

The current dip in Enterprise Products Partners' unit price offers investors a compelling entry point. By purchasing now, investors can capture an attractive income stream alongside meaningful upside potential as ongoing expansion project completions increase its cash flow. This blend of reliable income and the prospect of a resurgent unit price makes this MLP a worthwhile energy company to buy while its price is still down.

Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.