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

Key Points

• Enterprise Products Partners is a large North American Midstream business.

• The master limited partnership has a huge 6.9% yield.

• That yield is backed by a rock-solid business and a steadily growing distribution.

• 10 stocks we like better than Enterprise Products Partners ›

Enterprise Products Partners (NYSE: EPD) is not an exciting business. That's part of its charm, particularly for investors that are focused on generating a reliable income stream from their portfolios. Here's why income-focused investors can set themselves up for a lifetime of reliable income if they buy Enterprise Products Partners today.

What does Enterprise Products Partners do?

Enterprise Products Partners is one of the largest midstream businesses in North America. That means that it owns energy infrastructure like pipelines, storage, processing, and transportation assets. These are the vital tools for moving oil, natural gas, and the products into which they get turned around the world.

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The key to the story here, however, is how Enterprise gets paid. It is a simple toll taker, charging fees for the use of its energy infrastructure assets. The price of the commodities moving through its system is less important than demand for energy, which tends to remain robust even when commodity prices are weak. So despite operating in the volatile energy sector, Enterprise is really a pretty consistent business.

The best example of the consistency that Enterprise can provide investors shows up in its distribution. The master limited partnership (MLP) has increased its distribution every single year for 26 consecutive years. There have been multiple energy downturns over that time, including the demand shock seen during the coronavirus pandemic. Despite the fact that a key U.S. benchmark briefly fell below zero during the height of COVID, Enterprise didn't skip a beat with its distribution.

There's more to Enterprise's story than distribution growth

Enterprise's ability to reward income investors in both good times and bad is important, but it is most certainly not the only reason to buy this MLP. Another good reason is the 6.9% distribution yield. That's a huge income stream, noting that the S&P 500 index (SNPINDEX: ^GSPC) is only yielding around 1.3% today and the average energy stock has a yield of 3.5%.

Of course a big yield isn't worth anything if it can't be maintained, which brings up more reasons to buy Enterprise. For starters, the MLP has an investment-grade-rated balance sheet. That means there's a strong financial foundation to lean on here. That can be in the form of additional debt to help the partnership muddle through hard times. Or the balance sheet can be used to finance capital investments and the occasional acquisition. All are good uses of the balance sheet.

Meanwhile, the reliable cash flows the MLP generates create distributable cash flow that covers the distribution by around 1.7x. The excess coverage allows Enterprise to self-fund a large portion of its own growth. However, it also provides a lot of leeway for financial adversity before a distribution cut would be in order. So there's a rock-solid financial foundation with the balance sheet and relief valve in case of emergency with the excess distribution coverage.

A lifetime of income is what you could get with Enterprise

To be fair, the hefty distribution yield is likely to make up a large portion of an investor's return over time here. That's not likely to be a problem for investors trying to live off of the income they generate from their portfolios. And it highlights what is really being bought when you add Enterprise to your portfolio. The goal here is to generate a lifetime of reliable income. If that's what you are looking for, Enterprise Products Partners should be on your short list 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.