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Tickers in this Article: EPD, BSR, XOM, TPP
Energy partnership Enterprise Products Partners' (NYSE:EPD) strong dividend and reasonable leverage has allowed it to weather the financial crisis fairly well, and it has outperformed the BearLinx Alerian MLP Select Index ETN (PSE:BSR) over the past six months. The BSR fund benchmarks midstream energy-oriented master limited partnerships (MLPs).

Enterprise Products Partners is an integrated midstream energy company that owns 35,000 miles of natural gas, oil, natural gas liquids (NGL) and petrochemical pipelines in the U.S. Other assets owned by the company include 155 million barrels of storage capacity, natural gas processing plants, fractionation facilities (which purify raw natural gas) and offshore hub platforms. As an MLP, it is a type of limited partnership that is publicly traded. (Learn about the significant tax advantages of these organizations at Discover Master Limited Partnerships.)

The company's goal is to be totally integrated along the supply chain, and this is reflected in its asset structure. When natural gas is produced, it is transported in a pipeline owned by the company and delivered to a processing facility it also owns. The finished product is then stored and delivered to the customer along the company's network.

This wide diversification is also reflected in the company's earnings, which are split between four areas:
  • NGL Pipelines - 59% of operating earnings.
  • Onshore Natural Gas Pipelines - 21%.
  • Offshore Pipelines - 11%.
  • Petrochemical Services - 9%.
The company has a solid backlog of projects in its pipeline to expand its business the next few years, totaling more than $4 billion. Areas that the company is expanding to include the Pinedale Field in Wyoming and a pipeline to service the Barnett Shale in Texas, where the company said that there are 350 wells completed but still awaiting pipelines. Enterprise Products Partners is building two new pipeline extensions to help service this capacity.

The company's largest project by far is the Texas Offshore Port System (TOPS), which will be built off the coast of Texas over the next three years. Enterprise will own 33% of TOPS and is building it with several partners, including TEPPCO Partners (NYSE:TPP). The project is already supported by commitments from producers including Exxon Mobil (NYSE:XOM). The total capacity of the project when completed will be 1.8 million barrels per day. (To analyze hydrocarbon supplies, read Become An Oil And Gas Futures Detective.)

Enterprise maintains a distributable cash flow coverage ratio of 1.2, ensuring that it can pay out its promised dividend. Its debt/EBITDA ratio is also at a manageable 4.1-times in the third quarter of 2008. Enterprise paid $2.05 per share in dividends over the last 12 months, and based on current price, that gives investors a yield of 10.5%.

An Enterprise Not Without Risk
There are some risks to the Enterprise story. The company has a heavy concentration in the Gulf of Mexico offshore and the Gulf Coast on-shore, so there is an annual threat to its infrastructure from hurricane activity. The company may also suffer from guilt by association due to its connection to energy in general, although its earnings are not directly tied to energy prices.

Enterprise's high dividend and reasonable leverage might make it a good play for investors looking for high yield with potential upside when the market recovers.

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