Enterprise Products Partners L.P. (NYSE:EPD)

The company is focused on customers whose business have good prospects during a challenging period like the 2nd quarter. The result was that business did not fall apart as the market expected. The actual midstream structure itself is comprehensive and very diversified. The important part to note is that the natural gas liquids (or NGLs) are a big part of EPD's business, with gross operating margin for that segment being about 51% of the business.

To better understand what NGLs are, I will quote the 'Energy Information Administration':

Natural gas liquids ('NGLs') are hydrocarbons—in the same family of molecules as natural gas and crude oil, composed exclusively of carbon and hydrogen. Ethane, propane, butane, isobutane, and pentane are all NGLs. There are many uses for NGLs, spanning nearly all sectors of the economy. NGLs are used as inputs for petrochemical plants, burned for space heat and cooking, and blended into vehicle fuel....The chemical composition of these hydrocarbons is similar, yet their applications vary widely. Ethane occupies the largest share of NGL field production. It is used almost exclusively to produce ethylene, which is then turned into plastics. Much of the propane, by contrast, is burned for heating, although a substantial amount is used as petrochemical feedstock.

Source: U.S. Energy Information Administration

What was needed was customers (and end users) who need goods and products such as medical tubing, heating, car tires, detergents, plastics, and other manufactured products such as food packaging. The vast majority of these products are by-products of NGLs.

These types of uses occur even when the economy turns down due to “shelter in place” orders, and therefore necessities rather than cyclical in nature. In fact, plastic production, a petrochemical derivative, is expected to increase by 400% by the year 2050.

Enterprise Products Partners has long had a customer mix that has generally been relatively unaffected by economic downturns. The latest earnings report is an example of that resilience. Some managements are very good at finding resilient customers and focusing on those customers.

The other key is a low distribution ratio to provide a cushion “just in case” As shown above, management has always kept a fair amount of cash to reinvest in the business. This company was one of the first to stop relying on trips to the marketplace to raise capital. Also, the project profitability appears to be a good deal better than the industry average. Good management is a lot of small things that build into a very positive picture. Here that picture is the ability to raise the dividend/distribution practically at will from current levels. The company has increased its distribution for 21 consecutive years.

Undervalued relative to earnings, good management, wide moat, secure balance sheet. Oil and natural gas are likely to be part of the energy mix for many years to come.