Does Enterprise Products Partners’ Yield Indicate Undervaluation?
Enterprise Products Partners’ distribution growth
Enterprise Products Partners (EPD) declared a distribution of $0.42 per common share for the second quarter of 2017. That represents a 5.0% YoY (year-over-year) rise over 2Q16 and a sequential increase of 1.2%. It’s expected to continue growing its distribution in the coming years, driven by strong expansion projects, impressive distribution coverage (1.2x), and low leverage.
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Enterprise Products Partners’ distribution yield
Based on the second quarter distribution, EPD is trading at an attractive distribution yield of 6.4%. Its current yield is high compared to the last five-year, two-year, and one-year average of 5.1%, 6.1%, and 6.1%, respectively. EPD’s peers MPLX (MPLX) and Oneok (OKE) are currently trading at 7.6% and 5.4%, respectively.
EPD’s high distribution yield compared to its historical averages might reflect undervaluation, considering its strong distribution, low leverage, and massive expansion opportunities. Its high distribution yield might reflect its high commodity price exposure through its natural gas midstream business and declining Eagle Ford throughput volumes.
In the next three parts of this series, we’ll look at Kinder Morgan (KMI), which has the third-highest 2017 capital spending budget among US midstream companies.