The last high yielding stock to buy for $500 right now

The average energy stock yields 3.2%. The S&P 500 yields 1.2%. The midstream energy giant Enterprise product partners (NYSE: EPD) produces 7%, twice the average energy stock and more than five times the broader market. And the Enterprise’s unit price is only about $30, so you can get in the door for even less than $500 if you want.

Enterprise Products Partners is back from the abyss

Midstream players such as Enterprise own large energy infrastructure such as pipelines, storage and transmission assets. They are difficult to replace or replace and vital to power sector operations. They are also very expensive to build. So leverage is a notable issue in the midstream sector.

This affected the entire sector when interest rates were rising. Higher rates basically meant higher operating costs. This was a key reason Enterprise’s unit price was lowered following the market downturn in the early days of the COVID pandemic. This decline, ironically, was caused by concerns that energy demand would fall along with economic activity. However, the vast majority of Enterprise’s cash flows are driven by taxes, not energy prices.

Basically, Enterprise is paid for the use of its assets. The price of goods flowing through its system is much less important than the demand for energy. Energy demand tends to remain robust even when oil prices are weak because oil, natural gas, and the products they are transformed into are so important to the global economy. Now that rates are likely to fall, investors have finally caught on to the back story here. Enterprise shares are almost back to where they were before the pandemic.

Enterprise still has a high yield

That being said, this limited partnership (MLP) still has a huge yield. Don’t worry, though—it’s not a sign of weakness. It’s just a combination of the sector (midstream entities tend to pay high yields) and the MLP structure, which is specifically designed to transfer income to unitholders. Despite the unit price recovery, Enterprise is still an attractive option if you’re looking for a high-yield investment.

However, it is about more than yield. Remember, Enterprise’s core operation tends to provide relatively consistent cash flows over the entire energy cycle. But there are more. For example, the company’s balance sheet is evaluated for investments. That’s great, but there’s another important wrinkle here that sets it apart from its closest peers. Enterprise has long operated with extremely conservative leverage, appearing near the bottom of the debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) list year after year.

The story continues

Management’s fiscally conservative approach doesn’t stop there. Enterprise’s distributable cash flow also covers its distribution 1.7 times. This provides a lot of leeway for adversity before a distribution cut is on the table. And then there’s management’s commitment to growing distribution, which has grown annually for 26 consecutive years. That’s a very impressive streak when you consider the inherent volatility of the energy sector.

Enterprise Products Partners is an income investor’s best friend

There are reasons why you might want to select a different energy stock or even an intermediate investment (more attractive growth opportunities, for example). But if what you care about is a high return from a business that seems to pay you well in good times and bad, then Enterprise should be on your investment short list. While yield is likely to make up the lion’s share of your returns over time, you’d be hard-pressed to find a better overall choice if you’re trying to maximize the income your portfolio generates.

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

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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 latest High Yield Stocks to Buy for $500 Right Now was originally published by The Motley Fool