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Why Enterprise Products Partners Rallied 23.2% in the First Half of 2021

What happened

Units of Enterprise Products Partners (NYSE: EPD) surged 23.2% during the first half of 2021, according to data provided by S&P Global Market Intelligence. Improving conditions in the energy market have been fueling the master limited partnership (MLP).

So what

Energy demand has rebounded in 2021 as the global economy reopens, thanks partly to the rollout of vaccines helping to curb the pandemic. Enterprise Products Partners noted in February that it saw strong demand for natural gas liquids (NGLs), driven by demand for plastics. Likewise, oil demand has come roaring back. In May, the company noted that global oil consumption could top 100 million barrels a day by year-end and hit a new all-time high next year as the global economic rebound accelerates.

Image source: Getty Images.

That rebound in demand is driving higher volumes across the company's various pipeline systems. That enabled Enterprise Products Partners to produce strong first-quarter results. Overall, it generated $1.73 billion in distributable cash flow, up from $1.55 billion in the year-ago period. That strong showing came despite some impact from winter storms in Texas during the period and lower drilling activities as the industry hasn't yet fully recovered from the pandemic.

Enterprise Products Partners used that improved free cash flow to create value for shareholders. The company returned about two-thirds of that money to investors via its distribution. It reinvested the rest in expansion projects and acquiring an ethylene storage business along the U.S. Gulf Coast to beef up its network in the region. Those growth-focused investments position the company to benefit as demand for energy rises in the coming years. Meanwhile, because it funded the bulk of those investments with retained cash flow, Enterprise's balance sheet has continued improving. As a result, it has even more flexibility to take advantage of opportunities as they emerge during the recovery.

Now what

While Enterprise Products Partners has enjoyed a bounce-back year, the MLP's value remains more than 10% below its pre-pandemic level. Because of that, it could still have room to run, especially given the view that oil demand could hit an all-time high next year, which could drive prices even higher. That makes it an intriguing option, especially for income-seeking investors, given its well-supported 7.4%-yielding distribution.

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Matt DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.


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