Key Points

Investors should focus on reliability when they look at high-yield investments. You can find higher-yielding midstream players than Enterprise Products Partners. It is hard to find midstream stocks that are more reliable than Enterprise.

Enterprise Products Partners(NYSE: EPD) has a distribution yield of around 6.8% today. Energy Transfer(NYSE: ET) has a higher yield at 7.5%, and USA Compression Partners(NYSE: USAC) is even higher at 8.3%.

But if you are looking for a high-yield midstream stock, you need to think about more than just the yield. Here's why Enterprise Products Partners could be the best high-yield midstream option despite a lower yield.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

What does Enterprise Products Partners do?

Like most midstream players, Enterprise owns energy infrastructure, like pipelines. It charges energy producers fees for the use of that infrastructure.

So, in this regard, it isn't materially different from Energy Transfer or USA Compression Partners. They are all toll takers in their own way, which tends to produce reliable cash flows. All three are also considered master limited partnerships (MLPs), which means they all have added tax-filing implications that investors will need to contend with.

But all three of these companies are not operated in the same way.Image source: Getty Images.

For example, Energy Transfer cut its distribution in half in 2020 during the pandemic to reduce balance sheet leverage, which isn't a bad goal. However, that choice coincided with an oil downturn and a period when dividend investors would likely have preferred a little payout consistency in their lives.

USA Compression Partners' distribution, meanwhile, hasn't changed since 2016. That isn't a bad thing because this MLP explains that it "has a history of leveraged growth" and its balance sheet is below investment-grade. In other words, there's notable risk in USA Compression Partners' business model. Playing it safe is the right call on the distribution front, but it doesn't change the fact that there's more financial risk for unitholders.

By comparison, Enterprise Products Partners has increased its distribution for 26 consecutive years. Although the yield Enterprise offers is lower than that of Energy Transfer and USA Compression Partners, Enterprise has proven to be a much more reliable income investment.

There's a lot to like about Enterprise

If you are putting $10,000 on the line, you want to make sure you are buying a good business. Enterprise's distribution streak is the first highlight that it is a good business. It increased during the pandemic, 2016's energy headwinds, the Great Recession, and the dot.com crash, among other notable difficult periods during the last quarter-century. That didn't happen by accident.

Story Continues

Right now, Enterprise is in great shape, too. It has an investment-grade balance sheet, and the distribution is covered 1.7 times over by distributable cash flow. A lot would have to go wrong before a cut were on the table.

Meanwhile, management has a $7.6 billion capital investment plan. It seems reasonable to expect more distribution increases as those projects come online and start producing cash flow over the next few years. So not only has Enterprise been a more rewarding income investment historically, but it is also highly likely to keep rewarding long-term investors.

There's more to consider than just yield

For most dividend investors, the goal is a combination of high yield, some sort of income growth over time, and income reliability. If all you focus on is high yield, you may end up buying something that doesn't really fit your portfolio goals.

Which is why, if you are looking for a high-yield midstream investment today, Enterprise Products Partners is really one of the best options for balancing the many competing goals you are likely trying to achieve.

Should you invest $1,000 in Enterprise Products Partners right now?

Before you buy stock in Enterprise Products Partners, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Enterprise Products Partners wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $607,048!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $668,193!*

Now, it’s worth notingStock Advisor’s total average return is880% — a market-crushing outperformance compared to161%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 28, 2025

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

The Best High-Yield Midstream Stock to Invest $10,000 in Right Now was originally published by The Motley Fool

View Comments