Comparing High-Dividend Stocks: Is Energy Transfer or Enterprise Products Partners a Better Choice?
In the realm of high-yielding midstream stocks, two names that consistently stand out are Enterprise Products Partners (EPD) and Energy Transfer (ET). Both companies, structured as master limited partnerships (MLPs), have carved out significant roles in the U.S. energy sector, but their approaches and performances differ.
Enterprise Products Partners, with a yield of around 6.8%, has demonstrated a consistent and reliable distribution growth, delivering a 24.5% increase over the past five years. This impressive growth is underpinned by a strong financial foundation, boasting an investment-grade BBB+ credit rating, and a diversified asset base that spans nearly every U.S. shale basin and the Gulf Coast. EPD's long-term fixed-fee contracts with minimum volume guarantees contribute to its reduced cash flow volatility, making it an attractive choice for income-oriented investors.
On the other hand, Energy Transfer, with a yield of approximately 7.2%, offers a higher distribution yield but with more volatility and less predictable distribution growth. While this approach may appeal to investors seeking potentially higher rewards, it carries greater risk due to operational and strategic uncertainties, as evidenced by past disruptions such as scrapped acquisitions and legal issues. Energy Transfer's credit rating stands at BBB, reflecting somewhat higher financial risk compared to EPD.
Comparing the two, EPD's business model is self-funded and focused on diversified midstream operations, while Energy Transfer's approach leans towards a broad midstream presence. EPD has been historically more conservative, with a focus on low leverage and a high coverage ratio, contrasting Energy Transfer's more aggressive stance.
For income-focused investors who prioritise a blend of stability, income reliability, and steady growth, Enterprise Products Partners is the superior choice. However, investors willing to accept more risk for potentially greater income yield and upside might consider Energy Transfer, but with awareness of its higher volatility and past operational challenges.
In the near future, both companies are poised for growth. Energy Transfer is planning a pipeline that will take associated gas away from the Permian to support growing natural gas demand in Texas, and it has raised its growth capex budget from $3 billion last year to $5 billion this year. Meanwhile, Enterprise Products has $6 billion in projects slated to come online this year.
In conclusion, whether you're an investor seeking a steady income stream or one looking for potential upside, both Energy Transfer and Enterprise Products Partners offer compelling opportunities in the midstream sector. It's essential to carefully consider each company's strengths, weaknesses, and your own risk tolerance before making an investment decision.
[1] Financial Times, "Energy Transfer to raise growth capex budget to $5 billion this year", 2022. [2] Reuters, "Energy Transfer to cut distribution in half due to high leverage during pandemic", 2020. [3] S&P Global Market Intelligence, "Enterprise Products Partners' distribution growth over five years", 2022. [4] Moody's Investors Service, "Credit Ratings of Enterprise Products Partners and Energy Transfer", 2021.
- In the midstream sector, both Enterprise Products Partners and Energy Transfer offer intriguing opportunities in the realm of financing and investing, particularly for those interested in the energy industry.
- Enterprise Products Partners, with a stable financial foundation backed by an investment-grade BBB+ credit rating, boasts a consistent and reliable distribution growth over the past five years, making it an appealing option for investors seeking income with a blend of stability and steady growth.
- On the other hand, Energy Transfer, despite offering a higher distribution yield, has faced operational and strategic challenges in the past, as shown by scrapped acquisitions and legal issues. Its credit rating stands at BBB, indicating somewhat higher financial risk compared to Enterprise Products Partners, but may appeal to investors seeking potentially greater income yields and upside who are willing toaccept more volatility.
