Enterprise Products Partners (EPD), a stalwart in the midstream energy sector, has once again demonstrated its reliability with its fourth-quarter earnings release on Tuesday. Known for its steady, fee-based business model, the company continues to attract income investors, especially with its forward yield of 6.6%. However, the real question on everyone’s mind is: Is now the right time to invest in EPD? To answer that, let’s dive into the details of its quarterly performance, growth prospects, and overall valuation.
EPD’s fourth-quarter earnings were as predictable as ever, which is exactly what investors love about this company. It reported a 3% increase in total gross operating profit, reaching $2.63 billion, and a 4% rise in adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to nearly $2.6 billion. Distributable cash flow (DCF), a crucial metric for midstream companies, came in at $2.16 billion, up 5% year over year. This DCF, combined with a distribution coverage ratio of 1.8, signals that EPD has ample room to continue its impressive streak of 26 consecutive years of distribution hikes. Speaking of distributions, the company paid out $0.535 per unit for the quarter, marking a 3.9% increase from the previous year. It also demonstrated its commitment to shareholder value by repurchasing 2.1 million units for $63 million.
Looking ahead, EPD is gearing up for significant growth. The company plans to invest between $4 billion and $4.5 billion in growth capital expenditures (capex) this year, up from $3.9 billion in 2024 and a considerable jump from the $1.6 billion spent in 2022. Currently, EPD has $7.6 billion worth of major growth projects underway, with most expected to come online between the second half of 2025 and the end of 2026. These projects could potentially add $780 million to its EBITDA by 2026, based on the company’s historical annual return of around 13%. This growth momentum is further boosted by its pipeline of opportunities, particularly in Texas, where it has 20 data center projects and 15 potential power plant projects in various stages of development. While some of these projects are showing promising progress, others, like the long-delayed Sea Port Oil Terminal (SPOT) project, remain uncertain due to ongoing permitting challenges.
From a valuation standpoint, EPD’s stock looks attractive. The company currently trades at a forward enterprise value-to-EBITDA (EV/EBITDA) multiple of 9.8, based on analysts’ 2025 estimates. This is below its pre-pandemic trading range and significantly lower than the 13.7 average for midstream master limited partnerships (MLPs) between 2011 and 2016. Historically, EPD has commanded a premium in the midstream sector due to its consistent performance and strong balance sheet. With its leverage ratio at 3.1—well below the industry average of 3.5 to 4.5—the company is well-positioned to take on debt for growth without compromising its financial health.
Given all these factors, now seems like an opportune time to consider EPD stock. While 2025 is expected to see mid-single-digit cash flow growth, 2026 is shaping up to be a breakout year as several major projects reach completion. Investors not only get to enjoy the robust 6.6% dividend yield but also stand to benefit from the company’s upcoming growth initiatives. However, as with any investment, it’s crucial to do your due diligence. The Motley Fool’s Stock Advisor team has identified 10 stocks they believe have monster return potential, and while EPD wasn’t on that list, it’s worth exploring if it fits into your overall investment strategy.
In conclusion, Enterprise Products Partners offers a compelling combination of a high dividend yield, a strong balance sheet, and significant growth potential. With its stock trading at historically attractive valuations and its growth projects poised to drive future earnings, EPD is definitely worth considering for investors looking for a steady income stream and long-term growth. Just remember, no investment is without risk, so be sure to weigh your options carefully.
