Investing

The Single Best Dividend Stock to Buy Under $35

John Seetoo

Published: August 3, 2024 8:21 am

24/7 Wall Street Insights

• Analysts’ consensus on Enterprise Products Partners LP is a “strong buy”. 
• Bullish oil and gas industry trends, a 25 year unbroken track record streak for dividend increases, and expanded capacity projects already underway are all points in EPD’s favor.
• For investors seeking dividends, click here for a free report on two high dividend stocks.

UPS ran a promotion a few years ago touting its logistics expertise, and superiority in routing packages from various starting points to their destinations. Logistics are crucial, and the infrastructure through which products and services are routed to the end user is what creates their value in the market.

Enterprise Products Partners LP (NYSE: EPD) is to the oil and gas industry what UPS is for physical goods commerce, it moves products through North America and ties oil producers to the end users. The company is one of the largest publicly traded Master Limited Partnerships and is a major player in the midstream energy sector.

Oil and Gas Logistics – The Midstream Industry

The midstream energy industry comprises the infrastructure that transforms crude oil and natural gas into a valuable energy commodity. It provides product transportation services via pipeline, ocean tanker, rail and trucks, which are essential to the supply chain. The crude and natural gas product is routed to refineries or other processing locations. Post processing, the midstream industry is responsible for moving refined Natural Gas Liquids (NGL), gasoline, kerosine, propane, or other refined petroleum products, to warehouses, and subsequently retail distribution, or to export terminals.  Additionally, the midstream industry provides storage facilities and reduced temperature refrigeration services for liquifying gasses to transport them in tanks.

For tax purposes, they are often organized as master limited partnerships, which require them to remit 90% of profits to shareholders in exchange for access to public capital. 

Enterprise Products – The Midstream 800 lb. Gorilla, Piece By Piece

For over a half century, Enterprise Products has continued to expand its operations and has amassed a gigantic collection of midstream assets and services, which contribute to make it the current midstream “King of the Hill” by market cap size. The following is a list of some as of the past few years, although subject to change, due to current expansion projects:

Pipelines: 51,000 cumulative miles

• Natural Gas Liquids pipelines & services: 20,081 miles
• Onshore Natural Gas pipelines & services:  miles 20,789 miles
• Onshore Crude Oil pipelines & services: 5,291 miles (OK, NM, TX)
• Offshore Natural Gas and Crude Oil pipelines in Gulf of Mexico: 2,300 miles
• Propylene Pipelines in TX and LA: 1,630 miles 

Storage:

• NGL:  216.7 million barrels capacity (38 underground salt dome caverns)
• Natural Gas: 27×109 cubic feet capacity
• Crude Oil – surface level (OK, NM, TX) max. capacity: 44.2 million Bbls. 

Marine Terminals:

• NGL (1): The Houston Ship Channel Enterprise Hydrocarbons Terminal (EHT) has 8 deepwater ship docks that can take Suezmax sized vessels. Import load up to 8,100 Bbls/hour. It can also take LPG max. (835 Million Bbls/day), Crude Oil and Refined Petroleum Products.
• NGL (2): Morgan’s Point Ethane Export Terminal –  Export load up to 10,000 Bbls/hour (Houston Ship Channel).
• Crude Oil: capacity unavailable, (Houston, Beaumont, Midland, TX and Cushing, OK)

Natural Gas Processing

25 plants, with a total cumulative processing capacity of 11.3 million cubic ft/day  

• Colorado (1)
• Louisiana (2)
• Mississippi (1)
• New Mexico (3)
• Texas (17)
• Wyoming (1)

Fractionation

• 19 total NGL and propylene fractionators across 14 plants
• NGL: nine plants, with a net capacity of approximately 1.67 billion bpd
• Propylene: two facilities, with a net capacity of approximately 118 million bpd [1]
• Isomerization: three plants, with a net capacity of approximately 116 Mbpd

Why Are Analysts Rating It a “Strong Buy”?

The average consensus from 11 analysts on Wall Street is that Enterprise Products Partner LP is a “strong buy”. Among the most bullish: Stifel Nicolaus has a price target of $35, while Bernstein and TD Cowen are targeting $32.  

Enterprise Products has a 7% compound annual growth rate, which will likely get a boost in the future; the company announced this year that it had approximately $7 billion worth of expansion projects currently under construction. These include: 

• A new fractionator scheduled to launch operations in 2025 
• (3) new Permian Basin NGL plants in 2025-2026, comparable to its Leonidas and Mentone 3, which are each capable of significant processing capacities. There are plans to add three more 300 million cubic feet per day plants. This will enhance production capacity to 675,000 barrels per day. 
• A new propane and ethane export terminal in 2026 

Since the stock trades at a low 10-11X earnings, institutional investors on the prowl for value investments with strong and stable dividends are starting to take notice. Additionally, Enterprise Products authorized a $2 billion unit buy back. It has executed $1 billion of it at the time of this writing. 

The company is slated to release its latest earnings on July 30th. Enterprise Products is predicted to report an $0.65 EPS, which would be a 14.04% upward gain from the corresponding quarter of the prior year. The current analysts’ consensus estimate forecasts $13.81 billion in revenues, indicating a 29.65% growth compared to the corresponding quarter of 2023.

Since a stock’s yield goes down as its price goes up, July might represent a shrinking window of opportunity to take advantage of an annual yield north of 7%. On the other hand, Enterprise has a 25 year track record of dividend increases, so dividend size may also have upside prospects for investors of record. 

Enterprise Products can point to the combination of oil and gas market resurgence, greater operational capacities on the horizon to meet demand, and a healthy level of dividend growth as elements in its favor. This is the justification for Enterprise Products Partners LP being the 24/7 Wall Street pick for Single Best Dividend Stock to Buy Under $35 for July.