Midstream giant Enterprise Products Partners (NYSE: EPD) recently gave its investors another raise, this time boosting its payout to $0.4325 per quarter. While that was only a 2.4% increase from the year-ago level, it marked the master limited partnership 's 57th consecutive quarterly distribution increase and 66th overall since it went public about 20 years ago.
Enterprise Products Partners should have more than enough fuel to continue increasing its payout for the next few years, which is excellent news for investors, since companies that consistently increase their payouts tend to outperform their stingier peers . That has certainly been the case for Enterprise throughout its history, considering that it has generated a total return of more than 1,800%, which has pulverized the nearly 270% total return of the S&P 500 over that time frame.
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While Enterprise Products Partners' recent distribution increases have been relatively modest, that's by design. The company slowed its growth rate last year to give it more cash so that it could internally finance a larger portion of its current slate of growth projects. That helped the company complete $4.4 billion of expansions last year, which have already fueled a 27.7% uptick in cash flow per unit through the first half of 2018 versus the same period last year.
Meanwhile, there's more growth on the way. The company completed another $1.1 billion of expansions in the second quarter, which will provide it with a near-term boost. On top of that, it has another $5.7 billion of projects currently under construction, which positions it to continue growing cash flow at a fast pace over the next few years. The company also has several other projects in development as it works to capture its share of the nearly $800 billion midstream infrastructure opportunity . Those expansions should provide it with plenty of cash flow to continue growing its payout for many years to come.
Lots of options going forward
Enterprise Products Partners' decision to retain more cash has strengthened its distribution coverage ratio from what was an already solid 1.2 times at this time last year up to 1.5 times through the first half of 2018. That coverage ratio should widen further as additional expansions enter service and the company maintains its modest distribution growth rate through the end of this year. That will make the company's payout even more sustainable over the long term.
It's aiming to generate enough excess cash above its dividend so that it can fund a $2.5 billion annual investment program, which it should reach next year. Once it hits that target, the company has several options for the excess cash it will generate above that level, including investing in additional projects, buying back some of its units, or growing its payout at a faster pace. All those options have the potential to create value for investors going forward.
One great dividend growth stock
Enterprise Products Partners has been a model of consistency over the years, giving its investors a raise each quarter like clockwork. That trend is showing no signs of slowing down since the company has plenty of fuel to continue increasing its payout for at least the next few years. Because of that, the pipeline company could continue outperforming the market in the years to come, making it an excellent stock to consider buying for the long haul.
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Matthew DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy .