This dividend stock with a 7.2% yield could be about to add a lot more fuel to its growth engine

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Partners for business products (NYSE:EPD) has an illustrious history of expanding cash distributions to investors. It has reached a quarter-century milestone of consecutive annual payout increases. Several factors have contributed to the company's growth, including its ability to secure and build high-return organic expansion projects.

The master limited partnership (MLP) has several more expansion projects currently under construction. Furthermore, it has been working in recent years to secure a potentially game-changing, organic growth project. It seems to be is getting close to approving that project, what would add even more fuel for the long-term growth engine.

The spotlight on SPOT

Last month, Enterprise Products Partners finally received the deepwater port license for the proposed Sea Port Oil Terminal (SPOT). That license allows the company to move forward with the next step in the development of an offshore terminal that can load 2 million barrels of oil per day.

It would be a large-scale undertaking for the company. Reuters reported that the project could cost $3 billion to build. However, Enterprise's co-CEO Jim Teague commented in the company conference call about first quarter earnings figures those capital investments for the project are “nowhere near what was stated in the Reuters article.” Even at a much lower level of investment, it would be a significant investment for the company. From a perspective, the country expects capital expenditures to average around $3.25 billion over the next two years, based on currently approved projects, and up to $3.75 billion annually at the high end of the estimated growth capital expenditure range . That roughly equates to the $3.5 billion it invested in growth capital projects last year.

The company probably will not finance the whole project on it's own. In 2019, Enterprise Products Partners and Enbridge (NYSE: ENB) signed an agreement Unpleasant joint develop an oil export terminal in the Gulf of Mexico. Enbridge could buy a stake in SPOT, provided it recently obtained a deepwater port permit. Enbridge has significant financial flexibility, so it would not be a surprise if the company chooses to exercise that option and participate in this project.

However, financing the project is a secondary concern at this point. Enterprise Products' priority is commercialization. Brent Secrest, the company's Chief Commercial Officer, stated on the first quarter call that it expects to have two contracts in place by the end of next month. It is also in discussions with other parties to commercialize the project. Company will not continue with SPOT unless it has commercial contracts to support the project.

Visible growth ahead

Adding SPOT would increase Enterprise's already strong organic growth deficit. The company ended the first quarter with $6.9 billion in approved major projects under construction. That's an increase of $400 million from the previous month, after adding several more gathering and related projects in the Permian Basin. It now has a clear view of cash flow growth through 2026. SPOT would extend that even further as the company could complete that project by 2027 if sanctions are imposed this year.

This backlog drives the company's view that it will invest $3.25 billion to $3.75 billion annually over the next two years. Meanwhile, the company expects to invest an additional $2 billion to $2.5 billion in 2026 (including $750 million in approved projects). The country has sufficient financial flexibility to finance its growth and pay for its lucrative distribution. It has generated more than $8.2 billion in cash flow from operations in the past twelve months. easy to cover distributions ($4.4 billion) and cash used for investing activities ($3.6 billion). Meanwhile, it has the strongest balance sheet in the midstream sector at a low 3 times leverage ratio and A-rated credit.

The strong financial profile of the company gives it the flexibility to continue approving capital projects and making acquisitions as opportunities arise. Earlier this year it spent $400 million to acquire joint venture stakes and an additional stake in another pipeline from fellow MLP Western midstream partners. That deal will provide the country with additional cash flow.

The fuel to continue producing a growing revenue stream

Enterprise Products Partners is a model of consistency. The MLP has steadily grown its revenues by making positive acquisitions and investing in high-return expansion projects. That has given it the fuel to increase its distribution every year. Given the robust backlog of expansion projects and strong financial base, their disbursement should continue to increase going forward.

Securing SPOT would help improve and extend its long-term growth prospects, making it an exciting project to watch. It would possible make Enterprise an even more attractive option for investors looking for steady income growth.

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Matt DiLallo has positions in Enbridge and Enterprise Products Partners. The Motley Fool holds and recommends positions in Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has one disclosure policy.

This dividend stock with a 7.2% yield could be about to add a lot more fuel to its growth engine was originally published by The Motley Fool

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