Why Enterprise Products Partners Might Be One of the Strongest Energy Stocks in 2026

Enterprise Products Partners (NYSE: EPD) is about to enter an exciting new chapter. The master limited partnership (MLP) is currently putting the finishing touches on a multi-year capital investment phase that began in 2022. Once the energy midstream company completes its last major expansion project in the first half of next year, it will generate significantly more free cash flow.

That coming free cash flow inflection point positions the MLP (which sends its investors a Schedule K-1 Federal Tax Form each year) to return even more cash to investors in 2026. That uptick in cash returns could give it the fuel to produce some of the strongest total returns in the energy sector next year.

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The wellhead to water buildout

Enterprise Products Partners embarked on a major capital investment phase in 2022. The company has built large-scale pipelines and marine terminals over the past few years to support production growth in the Permian and Haynesville basins. It has also made a couple of platform acquisitions, including the purchase of Pinion Midstream for $950 million last year to accelerate its expansion into the eastern side of the Delaware Basin.

As a result, its annual growth capital spending rate rose from $1.6 billion in 2022 to a peak of $4.5 billion this year. These investments were part of the company's strategy to expand its infrastructure, enabling it to transport the growing production volumes from those two key production basins to the U.S. Gulf Coast, where it was also building additional export capacity.

The MLP is in the process of starting up its last remaining projects. It's commissioning its Bahia natural gas liquids (NGL) pipeline and expects to complete the second phase of its new Neches River Terminal in the second half of next year. Once it completes this initial infrastructure buildout, it won't need to invest nearly as much capital to support volume growth in the future.

Turning up the free cash flow

Enterprise Products Partners is on pace to complete $6 billion of growth capital projects during the second half of this year. This wave of project completions has the company on the cusp of reaching a significant inflection point. Most of these projects are still in the early stages of commissioning and ramping up their operations. As they ramp up their volumes in the coming quarters, they'll start to contribute significant incremental cash flow.

Meanwhile, as this expansion phase winds down, Enterprise Products Partners expects its growth capital spending to decline significantly in the coming years. As of the end of the third quarter, the MLP expected its investment spending to decline to a range of $2.2 billion to $2.5 billion next year to finish its remaining secured capital projects, and it didn't have any capital projects lined up for 2027. However, it has since approved an expansion of its Bahia pipeline, which it expects to complete by the fourth quarter of 2027. It approved that project in conjunction with ExxonMobil acquiring a 40% interest in the pipeline for $650 million, which will help offset the cost of the expansion.

Ramping up the cash returns

With new projects contributing cash flow and capital spending declining significantly, Enterprise Products Partners is on track to produce substantially more free cash flow starting next year. That will give the MLP more money to return to investors.

It hasn't stopped increasing its distribution during the buildout phase. Instead, it has now raised the payout for 27 straight years, including by 3.8% over the last 12 months. The MLP currently covers its distribution by a comfortable 1.5 times, giving it ample room to boost the payment rate in the coming years.

Additionally, Enterprise Products Partners recently hiked its unit repurchase authorization from $2 billion to $5 billion. That gives it a lot more capacity to use some of its additional excess free cash flow to repurchase additional units. It repurchased $80 million in the third quarter and has $3.6 billion remaining under its current authorization.

The fuel to produce high total returns in 2026

Enterprise Products Partners is reaching a significant milestone by wrapping up a major expansion phase. These projects will generate significant incremental cash flow for the MLP, which will also experience a substantial decline in its capital expenditures. The resulting surge in free cash flow will enable it to return more money to investors through higher distributions and increased unit repurchases. This combination of rapidly rising free cash flow and higher cash returns could help fuel robust total returns for investors in 2026, making it look like a compelling buy as we head into the new year.

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