Should You Buy Enterprise Products Partners While It's Below $33?

Enterprise Products Partners (NYSE: EPD) is offering investors an attractive 6.7% distribution yield. That compares to the tiny 1.2% yield for the S&P 500 (SNPINDEX: ^GSPC) and a 3.5% or so average yield in the broader energy sector. The big draw here is, obviously, the yield. But is that enough to make Enterprise a buy while it's trading below $33 a unit? Here's what you need to know.

What does Enterprise Products Partners do?

Enterprise Products Partners is a fairly boring business, which is a bit unusual in the energy sector. Upstream companies, which produce oil and natural gas, have volatile earnings because oil and natural gas prices dictate their top- and bottom-line results. Downstream companies, which make chemicals and refined products like gasoline, have volatile earnings because volatile oil and natural gas are key inputs, and the products they make are often volatile commodities, too. But midstream businesses like Enterprise are just toll takers.

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Midstream operators own energy infrastructure like pipelines, storage, processing, and transportation assets. They charge upstream and downstream companies fees for the use of these assets. Demand for energy is far more important to the top and bottom lines of a midstream business like Enterprise than the price of the commodities being moved.

Energy is so vital to the global economy that demand tends to remain robust throughout the energy cycle. And, thus, Enterprise's cash flows are fairly consistent over time.

That is how it supports such a large distribution payment, and how Enterprise has managed to increase that distribution every single year for 26 consecutive years. If you are looking for an ultra-high yield that is actually sustainable, Enterprise Products Partners should be on your short list.

EPD data by YCharts

Enterprise's unit price is rising, but the yield is still worthwhile

Enterprise has been far more attractive in the past, noting that its yield was over 10% during the early days of the coronavirus pandemic and associated bear market. That said, the master limited partnership's (MLP's) units have rallied strongly since that point. With the yield at around 6.7%, however, it is still an attractive yield option. The key is the regular distribution increases.

The last time Enterprise's unit price was in the $33 range, the yield was closer to 4%. Price alone isn't the key determinant here -- it is the combination of price and yield. And now that the distribution has had some time to grow, the price looks more attractive.

But there's more to this story than just price and yield. Enterprise has an investment-grade-rated balance sheet, so it is on a sound financial footing. In 2024, the distribution was covered 1.7x by the MLP's distributable cash flow. It is also one of the largest players in the North American midstream sector.

Put all of that together, and Enterprise is a very reliable income investment.

Should you buy Enterprise now?

The future is likely to look a lot like the past for Enterprise Products Partners. That basically means slow and steady growth of the business and the distribution. Right now, it has around $7.6 billion worth of capital investment projects in the works. That, plus regular price increases and the occasional acquisition, should keep the distribution growing for years to come. And that, in turn, should support further unit price gains.

All in, Enterprise is still a solid income option at $33 and, perhaps, even a little higher.

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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.