Consistency has been a trademark of Enterprise Products Partners (EPD) throughout its storied history. Through various energy and economic down cycles, the pipeline company serving the midstream market has been able to maintain its distribution and continually increase it. Last year marked the 26th straight year that the company raised its dividend.

With investors once again faced with economic uncertainty and lower energy prices, is now the time to buy Enterprise and its 7.2% forward yield? Let’s take a closer look at the company’s recent quarterly report to find out if the company can once again be a ballast in the current trade war storm.

Enterprise Products Partners is a steady performer
The key to Enterprise’s consistency is that it is primarily a volume-driven business with fee-based contracts. With fee-based contracts, it collects a set fee based on throughput volumes, which are not impacted by commodity prices or spreads. Historically, about 80% of the company’s gross operating profits come from fee-based activities, and it also likes to attach take-or-pay provisions to its contracts, so that it gets paid whether or not a customer uses its pipelines or services.

In Q1, 80% of its gross operating profits came from fee-based activities, while 14% were attached to commodity differentials (spreads), and 6% were tied to commodity prices. Most of its non-fee profits came from natural gas processing and octane enhancement activities. In addition, about 90% of its contracts include inflation escalation provisions.

Another big reason why Enterprise has been able to consistently raise its distribution is that it maintains a strong balance sheet. The midstream sector is a capital-intensive business, and companies typically take on debt to build out new projects. While many midstream companies will carry leverage of 4x or more, Enterprise has always been more conservative. This remained the case in Q1, with the company ending the quarter with leverage of 3.1x, which is right around its target range.

In addition, Enterprise has generally kept a solid distribution coverage ratio. For Q1, it had a 1.7 times distribution coverage ratio based on its distributable cash flow, which is a common midstream metric that is essentially a company’s operating cash flow minus maintenance capital expenditures (capex). This differs from free cash flow, which subtracts out all capex. The thinking behind this metric is that growth capex is more discretionary and can be adjusted in the future.

Overall, the combination of industry low leverage and a robust coverage ratio allows the company to prudently pursue growth projects, while also giving it plenty of room to grow its distribution. Meanwhile, its fee-based businesses create a strong base for the company with a high floor, meaning even in bad environments, the business remains relatively steady.

Now, the company isn’t completely immune to the macro environment and what is going on in the world. The company has an extensive operation that handles and exports LPG (liquefied petroleum gas). LPG was not spared from retaliatory tariffs from China, but it said the market has adjusted by rerouting U.S. barrels. It also noted that it’s about 90% contracted on LPG at the moment.

Meanwhile, Enterprise has entered a growth phase given the opportunities it has been seeing around natural gas and NGL (natural gas liquids) demand. It currently has $7.6 billion of growth projects under construction. While tariffs could impact costs, most of these projects are very far along (so contracts for things like steel have already been locked in), with $6 billion in projects expected to come online this year. This should be a strong growth driver for the company later this year and next.

Overall, Enterprise’s Q1 results were largely flat. Its total gross operating profit fell by 2% to $2.43 billion, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) edged lower by 1% to $2.44 billion. It increased its distributable cash flow by 5% to $2.01 billion. Its adjusted free cash flow was $1.06 billion.

It paid a quarterly distribution of $0.535 per unit, which was a 3.9% increase versus a year earlier. It also spent $60 million buying back its stock in the quarter.

Looking ahead, management noted that it has several projects set to come online in the second half, including two processing plants in the Permian in Q3. It expects the plants to ramp pretty quickly. Meanwhile, as of now, it expects to drop 2026 growth capex to between $2 billion and $2.5 billion, which will give it a lot of cash to pay down debt or buy back stock.

Is now the time to buy Enterprise Products Partners’ stock?
While Enterprise’s Q1 results weren’t anything to get excited about, they did show the steady nature of the company’s business in a tumultuous market. Meanwhile, with $6 billion in growth projects set to come online later this year, the company is poised to see strong growth in the latter half and into 2026. It will then have a lot of excess cash flow and flexibility in 2026.

Turning to valuation, the stock trades at a forward enterprise value-to-EBITDA (EV/EBITDA) multiple of 9.4 based on analysts’ 2025 estimates. EV/EBITDA is the most common metric used to value midstream companies, and this is well below the levels the stock traded at before the pandemic.

Given its track record, consistency, and valuation, this is a great time to buy Enterprise stock for the long term. It carries an attractive 7.2% forward yield and will see solid growth with so many projects coming online in the second half of this year.

— Geoffrey Seiler

46-Year-Old CEO Bets $44.2 Billion on One Stock [sponsor]
Netflix is NOT the future of entertainment. It's only a small fraction. And one billionaire CEO is taking charge of what Netflix DOESN'T do and leading the way for the next generation of entertainment. His forward-thinking company, which many people haven't even heard of yet, doesn't only want to compete with Netflix... It wants to rule the world...

Source: The Motley Fool