Yield spread

Enterprise Products Partners (EPD) is trading at a yield of ~6.2%, which is ~380 basis points higher than the US ten-year Treasury yield. Interestingly, this spread was just ~170 basis points five years back. With the US ten-year Treasury yield roughly around the same level as it was five years ago, the rise in the EPD-Treasury yield spread was largely attributed to the rise in Enterprise Products’ yield.

Enterprise Products’ Attractive Spread over Treasury Yield

The above graph shows Enterprise Products Partners’ forward distribution yield, and the US ten-year Treasury yield over the last five years. As the graph shows, EPD’s yield averaged ~6.3% over the last three years, which was higher than the average of ~5.7% over the last five years.

Enterprise Products Partners’ yield rose from ~4.0% at the end of 2014 to close at 8% in February 2016 when the stock price fell close to $20. Since then, the yield has lowered, though it remained higher than the five-year average.

Enterprise Products Partners’ yield has remained relatively range-bound over the last three years, reflecting the sideways movement of the stock’s price, as discussed in the previous article.

Attractive yield

At ~6.2%, Enterprise Products Partners has a higher yield than some of its peers. Plains All American Pipeline (PAA) is trading at a yield of ~5.0%, and Kinder Morgan (KMI) is trading at a yield of ~4.0%. In comparison, Energy Transfer (ET) and Magellan Midstream Partners (MMP) are trading at higher yields of ~8.0% and 6.6%, respectively.

Enterprise Products Partners has increased distributions for 58 consecutive quarters. Its coverage ratio for 2018 was 1.5x.

Let’s next take a look at EPD’s distributable cash flow growth over the years.

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