This 5.8% Yield Is Safe and Here's How You Know

The world is watching oil prices very closely right now, thanks to the geopolitical conflict in the Middle East. That makes total sense given the importance of energy to the global economy. However, you don't have to worry about what will happen to your dividends when oil prices fall if you own Enterprise Products Partners (NYSE: EPD). Here's how you know its lofty 5.8% yield is safe.

Enterprise sidesteps energy price risk

For starters, Enterprise is one of the largest midstream businesses in North America. This master limited partnership (MLP) owns assets such as pipelines and storage facilities. It charges energy producers fees for using its assets. The price of the commodities moving through its system isn't really that important. The key factor is the volume being moved, which is high almost all the time because of oil's importance to modern life.

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So, the core of the business is highly reliable. But that's not where the story ends when it comes to the distribution's safety. For example, in 2025, Enterprise generated enough distributable cash flow to cover its distribution by a very strong 1.7x. Distribution coverage has been 1.7x or higher for five years in a row. That provides a lot of leeway for adversity.

Investment-grade distributions

Enterprise's list of positives doesn't end there. The business is underpinned by an investment-grade-rated balance sheet. While the A- rating isn't the highest a business can achieve, it is more than sufficient to allow Enterprise access to debt markets even during difficult periods. In other words, if times did get tough, there's a secondary backstop, as management could lean on the balance sheet to support the business and the distribution for a period of time.

The end result of all of this is not just a lofty 5.8% distribution yield. It is a distribution that has been increased annually for 27 consecutive years. That is roughly as long as Enterprise has existed as a publicly traded entity. It has proven it can keep paying investors well when oil prices are high and low.

Err on the side of caution with energy stocks

If you are looking at high oil prices and considering buying an energy stock, step back and consider what happens when oil prices fall. The commodity-driven sector is inherently volatile. If you are a dividend investor, midstream-focused Enterprise's lofty yield has proven it is reliable through the entire energy cycle. It is likely to be a better option for conservative investors than an oil producer, both today and in the future, when oil prices inevitably fall.

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.