This magnificent ultra-high yield stock is spending $950 million to add more fuel to its dividend growth engine

Enterprise product partners (EPD 0.31%) it is an elite dividend stock. The master limited partnership (MLP) has increased its cash distribution to investors for 26 consecutive yearsinclusive by 5% in the last year. That payment at present yields over 7%, well over S&P 500 average below 1.5%.

The MLP he should have plenty of fuel to continue increasing his big payouts in the future. It recently agreed to spend $950 million on an add-on acquisition even more fuel for its dividend growth engine.

Filling the tank

Enterprise Products Partners recently disclosed that it is acquiring Pinon Midstream for $950 million in cash. Pinon Midstream provides natural gas gathering and processing services in the Delaware Basin portion of the Permian. It operates 50 miles of gas gathering and delivery pipelines, five compressor stations, and 270 million cubic feet per day (MMcf/d) of hydrogen sulfide and carbon dioxide treatment facilities. These assets generate predictable cash flow backed by long-term, fee-based contracts.

Pinon Midstream also offers the MLP visible upside potential. It is currently working to expand its treatment capacity to 450 MMcf/d, which should come online in the second half of next year. Enterprise also sees the potential to develop a third injection well that could support up to 750 MMcf/d of total treatment capacity.

Enterprise is excited about this deal. Co-CEO Jim Teague commented on the acquisition in a press release. He stated:

We believe that the Piñon management team has developed the first-rate sour natural gas treatment system in the Delaware Basin. These assets accelerate our entry into this region by at least three to four years. These assets are highly complementary to our midstream energy system and provide us with a excellent entry point into the eastern flank of the Delaware Basin for us to expand our natural gas processing footprint. Our input will provide manufacturers a choice for reliable and value-added processing services.

The acquisition will also be very favorable to MLP’s cash flow. Enterprise sees it adding $0.03 per share next year, and that’s it without benefiting from the expected commercial and operational synergies. This will give it more cash flow to increase its distribution in 2025 and beyond.

Many growth factors

The acquisition of Pinon adds to Enterprise Products Partners’ already strong growth profile. MLP currently has $6.7 billion of expansion projects under construction that it expects to complete by the end of 2026. These include new natural gas processing plants, pipeline expansions and additional export capacity. These projects provide a lot of visibility into the future growth of the company’s cash flow and its ability to return more capital to investors.

MLP has several organic expansion projects under development. These include large-scale projects such as its seaport oil terminal, additional processing and export capacity additions and pipeline expansions. The company is also evaluated lower carbon opportunities such as carbon capture and storage.

Enterprise Products Partners also has the financial flexibility to make additional acquisitions. It has the highest credit rating in the midstream sector and a low of 3.0 times leverage ratio, which ensures it greater access to low-cost capital to do increased trading. The acquisition of Pinon is the second notable transaction this year. Enterprise also spent $400 million to buy more stakes in joint ventures Western Midstream Partners.

A well oiled revenue generating machine

Enterprise Products Partners has a long history of growing its high yield distribution. The company he has a talent for making positive acquisitions and investing in high yielding capital projects to fuel its growth. Its Pinon deal will add to its already strong growth prospects, which should give this MLP even more fuel to increase its payout going forward. So if you want to collect a steadily growing stream of passive income (and you agree to receive a Schedule K-1 Federal Tax Form each year), Enterprise Products Partners is a fantastic option.