Where Will Enterprise Products Partners Be in 10 Years?

Enterprise Products Partners (NYSE: EPD) is an income stock. The entire master limited partnership structure (MLP) is designed to generate tax-advantaged income for unitholders (the trade-off is more complicated taxes). So when investors are looking at Enterprise it is most appropriate to consider it through an income lens. In 10 years, this giant North American midstream business is likely to be every bit as reliable on the income front as it is today. Here's why.

What does Enterprise Products Partners do?

Enterprise Products Partners owns energy infrastructure, including pipelines, storage, processing, and transportation assets. These are large and expensive items that can take years to build. They are the backbone of the energy sector, however, helping to move oil and natural gas from where it is produced to where it gets processed and, ultimately, used.

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The key difference with the midstream relative to the upstream (energy production) and the downstream (chemical and refining) is that it is fee driven. Simply put, Enterprise is a toll taker, charging customers for using its energy infrastructure. The price of the products flowing through the system is less important than the volume flowing through it. This means that Enterprise has fairly reliable cash flows through the entire energy cycle.

That helps explain how Enterprise has managed to increase its distribution for 26 consecutive years. There are some other positives on the distribution front, too. For example, Enterprise's balance sheet is investment-grade-rated, and the distribution was covered 1.7 times over by distributable cash flow in 2024. A lot would have to go wrong before a distribution cut would be a risk.

Enterprise Products Partners is positioned well for the future

The future is unknowable, of course. But Enterprise has done a good job of preparing for what seems likely to take place. Most notably, it has placed a heavy emphasis on serving the energy sector's natural gas needs. Its natural gas liquids business made up 55% of gross margin in 2024, with natural gas pipelines pitching in another 13%. So over two-thirds of its business is tied to natural gas.

Natural gas is cleaner burning than coal or oil. It is increasingly the fuel of choice for electricity, as it can provide base-load power to support intermittent sources like solar and wind. The United States is one of the larger producers of natural gas and is increasingly exporting it to the rest of the world.

As countries attempt to wean themselves off of a reliance on politically unstable providers, it seems likely that U.S. gas will help to fill the void. And Enterprise will be there to benefit, continuing to grow its business all along the way.

EPD data by YCharts

But remember that Enterprise is an income investment. So the big question should probably be about the distribution. Given Enterprise's financial strength and distribution coverage, it seems likely that the distribution will keep getting paid over the next decade. But regular fee increases, capital investment plans, and possible acquisitions are likely to keep the distribution growing.

Today, the annual disbursement is running at around $2.14 per unit. If the MLP's recent distribution growth rate of around 5% continues, which seems reasonable, the distribution in 10 years will be roughly $3.50 per unit per year. Given the current price of the units of roughly $30, that equates to a yield on purchase price of around 11.5%.

Enterprise will be even more attractive in a decade

Enterprise is not an exciting investment, but slow and boring can be pretty enticing when you add in a big yield. Right now Enterprise has a well-above-market yield of 7.1%. However, if you buy the MLP you could be setting yourself up for a decade of distribution growth that will, in time, push your yield on purchase price above 10%. That, by the way, is the average return that most investors expect from the broader market. The potential of collecting that 10% just from Enterprise's distribution could make this a great choice for long-term income-focused investors today.

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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.