Enterprise Products Partners' Distribution Growth Has Slowed From 5% to 2.7%. Is That a Red Flag or a Feature?

One of the main reasons investors buy Enterprise Products Partners (NYSE: EPD) stock is its distributions to investors, amounting to a dividend yield of 5.78% at its current share price. That's five times what the average S&P 500 stock's dividend yields.

If there's one concern about the Enterprise's dividend, it's that its increases are getting smaller. The midstream operator raised its total distributions by only 2.7% this year. In 2025, the distributions increased by 3.8%. In 2024, the dividend increase was 5%.

The downward trend might be cause for alarm for some, but there are three reasons why investors shouldn't worry.

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The stock continues to be shareholder-friendly

The distribution coverage ratio is actually improving, which means the dividend is safer than before. In the third quarter, the company reported operational distributable cash flow (DCF) of $2.3 billion, up 27% from the same quarter a year ago. That means DCF coverage is 1.9x, up from 1.5x in the third quarter of the prior year.

The company's DCF payout ratio over the past 12 months is 54%, down from 58% in the same period a year ago, meaning the distribution increases should continue. The company's dividend track record speaks volumes as it has raised its dividend for 28 consecutive years.

While its increases have been smaller as of late, the energy company has increased its stock buybacks, which helps buoy the stock's price. It is in the midst of a multi-year $5 billion stock repurchase program.

Its core business remains strong

The stock is up about 19% so far this year because of consistently strong financials. In the third quarter, Enterprise reported earnings per share (EPS) of $0.75, up 21% year over year, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $2.8 billion, up 16% over the same quarter a year ago. Adjusted core funds from operations were $2.4 billion, up 18% year over year.

The midstream operator charges customers a toll-like fee to use its more than 50,000 miles of pipelines and additional storage facilities, so the company isn't affected by short-term oil or gas price changes.

Enterprise controls an interconnected asset base across North America, stretching from gathering systems in the Permian Basin to large-scale export facilities on the U.S. Gulf Coast. This setup allows it to capture revenue across multiple stages of the energy value chain. The company reported record third-quarter volumes at its Permian Basin natural gas processing plants, natural gas liquids pipelines, and ethane marine export terminals.

The stock remains a bargain

Compared with its midstream competitors, Enterprise's shares are relatively inexpensive, with a valuation of less than 17 times trailing earnings and less than 13 times forward earnings. The company's recent lack of large distribution raises, rather than being a red flag, is just another sign of a conservative company that is looking to grow without going heavily into debt.

Enterprise consistently deploys $2 billion-$3 billion annually into organic expansion projects, such as new Permian gas processing plants and NGL fractionators, while maintaining an investment-grade balance sheet. As of the third quarter, it had a 3.0 leverage ratio, right in the middle of the company's target range of 2.75x to 3.25x.

James Halley has no position in any of the stocks mentioned. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.