From the DividendInvestor news file this week: Philip Morris International PM declared a dividend on Wednesday, hiking its quarterly payout to $1.20 from $1.17 for a 2.6% raise. As of today's closing price, the stock's forward yield is 5.9%. Please see a new analyst note below from Morningstar Research Services for Enterprise Products Partners EPD. Best wishes, David Harrell Editor, Morningstar DividendInvestor
News and Research for Dividend Select Portfolio Holdings
Enterprise Cancels Midland-to-ECHO Pipeline
by Stephen Ellis | Morningstar Research Services LLC | 09-09-20
Enterprise announced that it has canceled its Midland-to-ECHO 4 pipeline, as it was able to amend its existing customers' agreements to use in-service pipelines to meet its needs. Broadly, we see the cancelation as an indicator that Permian oil production growth (the pipeline was expected to move 450,000 bpd initially) over the next few years will be significantly less than expectations at the end of 2019, which is not surprising given the COVID-19 impact. Enterprise will take an immaterial $45 million charge in the third quarter. Its growth capital spending plans for 2021 and 2022 decline to $1.6 billion and $900 million from earlier guidance of $2.3 billion and $1 billion, respectively. After updating our model for the lower capital spending and earnings impact, our $25.50 fair value estimate and wide moat ratings are unchanged. Our EBITDA expectations already assumed flat earnings from 2020-22, given the difficult market and challenges around new growth projects. With the lower capital spending, we expect between $600 million and $900 million in excess cash in 2021 and 2022, and we think reducing leverage and prioritizing buybacks are high on the list.
We continue to think Enterprise remains deeply undervalued, and its 10% yield should be enticing for income investors. We see no risk of the distribution being reduced, given its 1.6 times coverage ratio and substantial excess cash generation (cash remaining after funding the distribution and capital spending) over the next few years. Liquidity and leverage are also not a concern given the partnership's $7.3 billion in liquidity in the second quarter, and leverage is at 3.4 times and declining. The diversity and scale of the partnership's operations across oil, natural gas liquids, gas, and petrochemicals ensures it will be able to pivot accordingly as the market recovers to maximize new earnings opportunities.
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