Enterprise Products Partners: Your Next High-Yield Dividend Stock

Now that the S&P 500 (SNPINDEX: ^GSPC) has dipped into correction territory, some investors may be thinking about adding some "less exciting" investments to their portfolios to ease the inevitable volatility. There are plenty of options on that front, but one that you may not be expecting is Enterprise Products Partners (NYSE: EPD).

After all, it hails from the highly volatile energy sector. Don't let that fool you, though: This is a very attractive dividend stock. Here's why.

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Why do investors buy dividend stocks?

Investors tend to buy income-generating stocks for the income they generate. On that score, Enterprise Products Partners offers a very attractive 6.3% distribution yield.

Notice the word "distribution" instead of "dividend." That's because Enterprise is a master limited partnership (MLP), which is a bit different from a traditional company. There are some taxation differences around that (including the need to deal with a Schedule K-1 form at tax time), but the large income stream is also because it uses this pass-through structure.

Image source: Getty Images.

For comparison purposes, even after dipping briefly into correction territory, the S&P 500 index is only offering an average yield of 1.2%. The average energy stock, meanwhile, has a yield of just 3.1%. Enterprise's yield also beats out other income-focused sectors like real estate investment trusts (3.6% average yield) and utilities (2.8%). Clearly, Enterprise stands out from the pack.

There's one more fact to like about the MLP's distribution. It has been increased every year for 26 consecutive years. So not only is this a high-yield opportunity, but it is also one that has a proven record of rewarding dividend investors with distribution growth.

Data by YCharts.

Enterprise Products Partners is not a risky investment

Some dividend investors might look at the high yield and suspect that there's something wrong with Enterprise. There really isn't. The North American midstream giant has an investment-grade balance sheet, and its distributable cash flow covers its distribution by a huge 1.7 times. There is a lot of room for adversity before the distribution would be at risk of a cut.

In fact, Enterprise had a record year in 2024, producing more distributable cash flow than ever before. If you are looking for things to be concerned about here, the best one is probably the fact that Enterprise operates in the energy sector.

That's true, but it operates in the midstream, which is the most consistent part of the sector. Essentially it is a toll taker, charging fees for the use of its pipelines and other transportation assets.

Energy prices go up and down over time, but demand tends to remain robust no matter what the price is. Enterprise's business is really driven by the volume of energy that it moves for other energy companies, not the price of that energy.

This is why it has been such a reliable income stock for such a long time. And given the increasing global demand for energy of all kinds, it seems highly likely that Enterprise will continue to reward investors well for the foreseeable future.

Make a place for Enterprise in your dividend portfolio

If you have watched the market drop 10% and feel like you need a less volatile alternative, then reliable dividend stocks should be on your radar screen. The big benefit is that dividend stocks allow you to focus on collecting reliable dividend checks instead of watching volatile stock prices.

And when it comes to reliable dividend checks, it is hard to beat Enterprise Products Partners. The MLP has $7.6 billion in capital investment projects in the works right now that should help keep your income stream growing even if the market falls some more.

Should you invest $1,000 in Enterprise Products Partners right now?

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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.