Generating passive income requires two essential ingredients: up-front money to invest and an investment that regularly pays you. Fortunately, there are many investment alternatives that pay you for owning them, with one standout option being Enterprise Products Partners (NYSE: EPD), a leading midstream energy company based in Houston.
Enterprise Products Partners operates over 50,000 miles of pipeline that transports natural gas liquids, natural gas, and crude oil throughout the U.S. In addition to its extensive pipeline network, the company also boasts over 300 million barrels of liquids storage, natural gas processing trains, fractionators, deepwater docks, and dehydrogenation facilities. With roughly $6.5 billion of major projects under construction, Enterprise is continuously expanding and improving its infrastructure.
One of the key factors that make Enterprise Products Partners an attractive investment for generating passive income is its high distribution yield, which currently exceeds 7%. This means that for every $10,000 invested, you can expect an annual income of over $700. Furthermore, the company has a track record of increasing its distribution for 25 consecutive years, with a compound annual growth rate of around 7%.
In terms of financial performance, Enterprise Products Partners has consistently delivered a return on invested capital of 12% over the last decade. Its adjusted cash flow from operations continues to grow, and the company manages its debt well, holding an A- credit rating. Additionally, the units of Enterprise are priced attractively at 10.9 times forward earnings, making them a compelling investment opportunity.
While some investors may be concerned about Enterprise’s focus on fossil fuels, the demand for natural gas and NGLs is expected to continue growing, ensuring the relevance of the company’s midstream assets for years to come. However, one drawback of investing in Enterprise is the requirement for LPs to provide each unitholder with a Form K-1, which can complicate tax preparation.
In conclusion, Enterprise Products Partners stands out as a monster passive income machine due to its high distribution yield, consistent distribution growth, strong financial performance, and attractive pricing. While there may be some drawbacks to consider, the company’s solid track record and ongoing expansion projects make it a compelling option for investors looking to generate passive income.
