Could Buying Enterprise Products Partners Today Set You Up for Life?

One of the best ways to ensure an investment can reward you well for the rest of your life is to buy reliable, high-yield stocks. On that front, Enterprise Products Partners (NYSE: EPD) stands out. A well-above-market distribution yield of 6.8% is one reason for that, but so is the strength of the midstream master limited partnership's (MLP's) business and its impressive distribution history. Here's what you need to know before buying.

What does Enterprise Products Partners do?

Enterprise Products Partners owns energy infrastructure, including pipelines, storage, processing, and transportation assets. It operates in what is generally referred to as the "midstream" segment of the overall energy sector. This is very important if you are looking to set yourself up with a reliable income stream for the rest of your life.

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The "upstream" is where oil and natural gas are produced. The "downstream" is where these commodities are processed. Financial results in both the upstream and the downstream are heavily influenced by often volatile commodity prices. The midstream, which basically connects the upstream to the downstream (and the rest of the world), isn't. Midstream businesses generally charge fees for the use of their energy assets. So, demand for energy, which tends to be fairly robust through the economic cycle, is more important to financial results.

Basically, Enterprise Products Partners' core business is designed to produce reliable cash flows. And those cash flows support the MLP's lofty 6.8% distribution yield. That yield is likely to make up the lion's share of an investor's return over time, but that probably won't be a problem for income-oriented investors.

How reliable is Enterprise Products Partners?

Enterprise Products Partners' business is designed to generate reliable cash flows, but what does history say about its ability to set you up with a lifetime of reliable distributions? Well, a lot.

For starters, Enterprise has increased its distribution annually for 26 consecutive years. That notably includes increases during the coronavirus pandemic and the oil downturn in 2016, both times when it would have been easy to justify a distribution cut. In fact, peers did cut their distributions in both of those periods, including Energy Transfer (NYSE: ET) in 2020 and Kinder Morgan (NYSE: KMI) in 2016.

EPD Dividend data by YCharts

If you are looking for a reliable income investment, Enterprise Products Partners stands out. But there's more to like here than just the distribution streak. For example, Enterprise Products Partners has an investment-grade-rated balance sheet. The distribution is covered 1.7x by the MLP's distributable cash flow. Essentially, there is a lot of room for adversity before a distribution cut would likely be on the table.

The distribution seems highly likely to keep growing, as well. The first reason is inherent to the midstream business. Increasing the fees charged along with inflation is the industry norm. Meanwhile, Enterprise has a long history of growing through capital investment projects, with a $7.6 billion capital plan currently in the works. On top of those two growth levers, Enterprise happens to be large enough to act as an industry consolidator. So, the occasional acquisition is a further growth driver to keep in mind, though acquisitions are impossible to predict.

Enterprise offers a compelling story for income investors

The one caveat here is that the world is increasingly using cleaner energy sources. However, the transition is likely to take decades, and it is far more likely that an all-of-the-above strategy (that includes carbon fuels) will be the final outcome. Don't count Enterprise out because it deals with carbon energy. All in, if you are looking for an investment that can set you up with a lifetime of income, Enterprise Products Partners and its lofty 6.8% distribution yield should be on your shortlist today.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.