Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products, and petrochemicals in North America.
Last week, Enterprise Product Partners declared its 29th consecutive quarterly distribution increase. The board of directors of the General Partner increased the distribution rate to 61.25 cents/unit. This represented a 5.20% increase over the distribution paid in the third quarter of 2010. This dividend achieverhas increased distributions in every year since 1999. As a unitholder, it pays well to get paid a high yield while also having my income increased over time. Check my analysis of the partnership.
Enterprise Product Partners is organized as a master limited partnership, where income and cash are proportionally distributed to unitholders. Since it is a partnership, shareholders are called unitholders and dividends are called distributions. With MLPs, typically only a portion of the cash distributions is taxed as ordinary income. The remainder represents a tax deferred distribution, which reduces the partner’s cost basis in the partnership. If the partner sells, this would translate into higher capital gains taxes they have to pay to the IRS.
The return of capital deferral is a result of depreciation on the massive capital assets that the partnership owns. Just like with real-estate, even if pipelines are fully depreciated on the company’s books, they will likely be in a good condition for continued exploitation. As a result, an important metric to use with MLPs is distributable cash flows. The partnership maintained a distribution payout ratio of 77% in 2010. Enterprise is also one of the few partnerships which have no incentive distributions rights for the general partner.
I will be considering adding to my position in the partnership on any price declines. The yield of 5.70%, coupled with solid distribution growth potential make this company a buy.
Full Disclosure: Long EPD
- Enterprise Products Partners L.P. (EPD) Dividend Stock Analysis
- Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors
- General vs Limited Partners in MLP's
- MLPs for tax-deferred accounts [more]
I invest in several dividend stocks every month. In order to end up with ideas to purchase, I have a rigorous screening process. I have described in detail what my entry criteria is in this article. Basically I look for certain quantitative factors such as valuation, dividend sustainability, return on equity and historical EPS and DPS growth. In terms of qualitative factors I look for competitive advantages, products with lasting impressions in customers and ability to grow earnings and dividends. [more]
Dividend Growth Stocks are one of the best kept secret in the investing world. After all, these are high quality companies which have strong competitive advantages that allow them to generate rising earnings over time. As a result, most of these companies generate so much in excess cash flow, that they are able to pay a higher dividend over time without sacrificing long term growth.
Companies which raise dividends at a high rate could easily generate double-digit yields on cost for investors who bought early and at the right time. [more]
The dividend growth portfolio project includes several dividend investing bloggers, each of whom has selected three dividend stocks to include in a hypothetical dividend growth portfolio.
The stock picks that I selected include Enterprise Products Partners (EPD), McDonald’s Corporation (MCD) and Chevron Corporation (CVX).
Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. Investing in Chevron is a direct play on oil prices and the demand for energy. Long-term, the company is well positioned to capture sufficient profits in its Upstream segment, and has a solid strategy in exploring or acquiring promising assets that will fuel the growth in future earnings per share. Chevron will grow by acquiring and developing assets that will add to its reserves. New field developments are expected to generate 1%-2% annual production growth over the next five years. This dividend achiever has increased dividends for 24 years in a row and yields 3.30% (analysis).
Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products, and petrochemicals in North America. Enterprise Products Partners is the largest Master Limited Partnership in the US. Most of the partnership’s income is derived from oil and gas flowing through its vast network of pipelines. While prices of oil and gas are very volatile, the volumes of oil and gas transported in the US is relatively stable. MLPs like Enterprise Product Partners have a virtual monopoly on transporting oil and gas, as it is very expensive to build a pipeline, which is why opening a competing pipeline would not be a feasible idea. A large part of distributions that MLP investors receive are not taxed, as they represent return of capital caused by depreciation expense. This master limited partnership has increased dividends for 14 years in a row and yields 6% (analysis).
McDonald’s Corporation (MCD), together with its subsidiaries, operates as a foodservice retailer worldwide. It franchises and operates McDonald’s restaurants worldwide. Analysts expect the company to manage to deliver 4% - 5% annual sales growth over the next few years. Growth in Asia/Pacific and Europe would likely outstrip US revenue growth. The international segment, which accounts for almost 55% of profits, has accounted for much of the growth in the past and is also expected to deliver growth in the future. The company has been able to achieve sales growth through innovation in its menu, introduction of different drinks as well as using its dollar menu items. This dividend aristocrat has increased dividends for 34 years in a row and yields 3.20% (analysis).
On a side note, my selection of Phillip Morris International (PM) was rejected, because the stock was already included in the portfolio. However, I truly believe PMI to be a great yield/growth combo for long-term investors.
The complete portfolio could be accessed from this link. As with the other contest I participate in, I only include stocks as a long term investment.
Full disclosure: Long MCD, EPD, CVX
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Dividend stocks offer the best of both worlds – capital gains along with a recurring quarterly cash income stream. The positive about dividned stocks is most evident during turbulent market conditions, when investors suffer from volatility and lower stock prices. Most of the quality dividend stocks have hardly moved during the turmoil that started several months ago, caused by fears about a double dip, unemployment and defaults by sovereign countries. The cash dividend serves as an added bonus, as it provides a cushion against further declines in the stock price.
Back at the end of 2010, I was asked to selected the best stocks for 2011, as part of an ongoing competition between several investment site publishers. You can read the reasons behind my four selections in this article. The four stocks I selected included:
Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company raised its dividends by 20.30% this year. Yield: 3.70%. Check my analysis of the stock.
Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company raised its dividends by 5.60% this year. Johnson & Johnson has raised distributions for 49 consecutive years. Yield: 3.50%. Check my analysis of the stock. [more]