Invest in Lucrative Energy Stocks Worth $10,000 for a Lifetime
In the realm of midstream pipeline companies, two standouts are Enterprise Products Partners (EPD) and Energy Transfer (ET). Both companies operate as master limited partnerships (MLPs) and transport natural gas, natural gas liquids (NGLs), crude oil, and refined products through their extensive pipeline networks.
Enterprise Products Partners (EPD): Stable and Sustainable Dividends
Over the next few decades, EPD offers more stable and sustainable dividends with steady distribution growth (~24.5% over five years) supported by its conservative fee-based, toll-taker business model in midstream energy infrastructure. Its dividend sustainability is high, and it has consistently demonstrated a growth trajectory.
EPD's DPU consistently rose from $1.77 in 2019 to $2.10 in 2024. The company's $4.6 billion in distributions accounted for 55% of its annualized DCF of $8.4 billion in 2024. EPD's valuation reflects its strong balance sheet, consistent earnings, and dividend growth history, trading at a premium for stability.
Energy Transfer (ET): Higher Yield and Aggressive Growth
Energy Transfer, by contrast, has a higher current yield (~7.4%) and a more aggressive distribution strategy, resulting in more volatile but potentially higher total return opportunities. Its growth profile is more opportunistic, with a higher distribution yield that appeals to yield-seeking investors.
Energy Transfer's annualized DPU fell from $1.22 in 2019 to $0.61 in 2021, but has since been raised to $1.30 in 2024. Its annualized distributable cash flow (DCF) stayed below its total annualized distributions over the past five years. ET's valuation reflects its elevated risk profile, trading at higher yields.
Long-Term Growth Potential
Over the long term, ET's portfolio mix and strategic expansions suggest a higher growth ceiling if operational and market conditions remain favourable. However, EPD's consistent asset utilization, operational efficiency, and conservative capital allocation underpin a steadier growth trajectory albeit with lower risk volatility.
Valuation
In valuation terms, ET typically trades at slightly higher yields reflecting its higher risk profile, while EPD trades at a premium for stability. Investors often build portfolios blending both to balance yield enhancement and growth with distribution reliability.
Comparative Analysis
| Aspect | Enterprise Products Partners (EPD) | Energy Transfer (ET) | |-------------------------|--------------------------------------------------|--------------------------------------------------| | Dividend Sustainability | High, steady, 24.5% five-year distribution growth| Less stable, more volatile but higher current yield (~7.4%) | | Long-Term Growth Potential| Moderate, steady growth driven by operational efficiency and fee-based assets | Higher potential growth with opportunistic expansions but more volatility | | Valuation | Premium valuation for stability and reliability | Higher yield valuation reflecting elevated risk |
In conclusion, EPD suits investors prioritizing dividend safety and steady growth, while ET may appeal to those seeking higher yield and aggressive growth with greater risk tolerance.
Notably, Energy Transfer also expanded into the gas station market with its acquisition of Sunoco in 2012. Meanwhile, Enterprise doesn't operate any retail fuel stations. Energy Transfer exports its NGL and liquefied natural gas (LNG) overseas, while Enterprise exports some NGLs but doesn't export any LNG yet.
Furthermore, Energy Transfer operates more than 135,000 miles of pipeline across 44 states, while Enterprise operates over 50,000 miles of pipeline in 27 states. Energy Transfer's growth potential is expected to be driven by its ongoing expansion in the Permian Basin, the integration of its recent acquisitions, and the completion of its LNG export project at Lake Charles, Louisiana.
On the other hand, Enterprise's growth potential is expected to be fueled by its Permian Basin processing plants, its Bahia NGL pipeline, and its expansion plans in Mont Belvieu and Orange County in Texas.
Lastly, Energy Transfer's smaller retail fuel segment is still exposed to fluctuating crude oil prices, adding another layer of risk to its overall profile.
[1] Investopedia. (2022). Enterprise Products Partners LP vs. Energy Transfer LP. Retrieved 12 April 2022, from https://www.investopedia.com/ask/answers/112915/which-better-enterprise-products-partners-lp-or-energy-transfer-lp.asp [3] Seeking Alpha. (2019). Energy Transfer LP: Time To Buy The Dip? Retrieved 12 April 2022, from https://seekingalpha.com/article/4276913-energy-transfer-lp-time-buy-dip [4] Seeking Alpha. (2021). Enterprise Products Partners LP: A High-Quality Dividend Growth Stock. Retrieved 12 April 2022, from https://seekingalpha.com/article/4401620-enterprise-products-partners-lp-high-quality-dividend-growth-stock [5] Zacks. (2022). Enterprise Products Partners LP vs. Energy Transfer LP: Which is the Better Value Stock Right Now? Retrieved 12 April 2022, from https://www.zacks.com/stock/news/3054383/enterprise-products-partners-lp-vs-energy-transfer-lp-which-is-the-better-value-stock-right-now
- In the midstream energy industry, Enterprise Products Partners (EPD) stands out for its stable and sustainable dividends, offering a growth of about 24.5% over five years.
- Energy Transfer (ET), while providing a higher yield, has a more aggressive distribution strategy, resulting in potentially higher total return opportunities but with more volatility.
- For investors seeking a blend of yield enhancement, growth, and distribution reliability, a balanced portfolio containing both EPD and ET could be an advantageous investment in the finance industry.
