This Passive Income Giant Could Add More Fuel To Keep Income Higher

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Enterprise Product Partners (NYSE:EPD) has been one of the top passive income producers over the past two decades. The Master Limited Partnership (MLP) has increased its cash distribution to investors for 23 consecutive years, growing it at a compound annual rate of 7%. This payout is currently yielding more than 7.3%, well above the average for dividend-paying stocks.

The midstream energy company should have the fuel to increase this payment for years to come. It already has a large backlog of investment projects secured by commercial guarantees under construction. Meanwhile, it has a growing portfolio of projects under development, including the potential to build a major petrochemical plant in Texas. This newly revealed project could expand its prospects for distribution growth in the future.

Fueling the engine of growth

Enterprise Products Partners currently has $4.5 billion in major projects under construction. These projects run the gamut and include natural gas pipelines, additional capacity at natural gas liquids (NGL) processing and export terminals, and petrochemical facilities and related infrastructure. It expects to complete these projects over the next few years, with the last scheduled commissioning date in 2025.

The MLP plans to invest approximately $1.5 billion annually in these expansion projects. This investment should help to steadily increase its cash flow, allowing Enterprise to continue to increase its distribution.

Enterprise Products Partners also has several other potential projects in development. He works at a large oil export terminal along the US Gulf Coast. The company has partnered with the Canadian energy infrastructure giant Enbridge to construct the Sea Port Oil Terminal (SPOT) project and the oil giant secured Chevron as an anchor sender. Enterprise also works with western oil on a potential carbon dioxide transport and sequestration project along the Gulf Coast.

Meanwhile, the company recently filed plans to build a $5 billion petrochemical plant in Texas. The facility would turn NGLs (ethane and propane) into building blocks for chemical products and other products.

Why he turns to chemicals to fuel growth

Enterprise already has a significant petrochemical business. It has a plant that converts propane into propylene, used primarily to make polypropylene plastics for injection molding and fibers, and another under construction. Additionally, it is working to double the export capacity of its ethylene terminal by 2025.

Due to continued high petrochemical demand, the company’s customers are looking for more petrochemical production capacity. Instead of building a world-class facility themselves, they turn to Enterprise to develop and operate the facility on their behalf. They would purchase petchem products from Enterprise under fee-based contracts, allowing MLP to generate predictable cash flow from the facility.

However, it should be noted that Enterprise is not the only MLP pursuing a new petchem project in the region. Rival MLP Energy transfer (NYSE: ET) also working on a new petrochemical project along the US Gulf Coast. This project would allow Energy Transfer to expand further into the chemical value chain by connecting a production facility to its other infrastructure, including its recently purchased underground storage terminals and growing export capacity.

With demand for ethylene and propylene expected to continue to grow over the next few years, the two companies could move forward with separate projects. This would give everyone more fuel to increase their already large cash distributions in the future.

A High-Octane Passive Income Stream

Enterprise Products Partners has been providing investors with steadily increasing cash distributions for more than two decades. This growth streak shows no signs of stopping, given what it has to come. The company’s ever-increasing payout makes it a great option for those looking for a growing source of passive income.

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Matthew DiLallo holds positions at Enbridge, Energy Transfer LP and Enterprise Products Partners. The Motley Fool fills positions and endorses Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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