As the green energy revolution plays out, many investors are choosing which companies they think will come out on top.
But here at Fortress, not only do we target the companies best positioned to profit from decades-long, multitrillion-dollar trends… We find the ones that pay out consistent and growing income year after year.
Today, Chief Analyst Adam Galas showcases one of our long-term favorites that’s presenting an incredible buying opportunity.
It’s offering a safe 7% yield… and it’s positioned to come out as a winner – regardless of which of the oil and gas majors comes out ahead in the green energy race.
Click below to watch the video or scroll down to read the transcript.
Happy SWAN (sleep well at night) investing,
Brad Thomas Editor, Fortress Portfolio
Transcript
Welcome Fortress Portfolio members to another weekly video update.
The “hear me now quote me later” edition.
Today we’re going to be talking about Enterprise Products Partners (EPD). And mark my words, this will come up again in the future.
But today, I just want to share with you why EPD is a continued incredible buying opportunity right now… as well as show you how we can tell that EPD is one of the safest 7.5% yields on Wall Street.
So let me share with you why we’re so excited about, Enterprise Products Partners, one of our top Fortress Portfolio holdings.
During the pandemic, this thing went from undervalued to insanely undervalued.
To the point that it was 65% historically undervalued… which is why even though it’s up 130% since – it’s still a potentially wonderful buy right now.
And it has another 75% upside potential through 2025.
That’s a 27% annualized return potential.
This is compared to 5% total return potential for the entire S&P 500.
So EPD has around 15 times the return potential of the broader market.
But I want to show case Enterprise more here.
During the pandemic oil went to -$38 a barrel – people didn’t even know it could do that!
Well, look at this… The cash flow was down just 8% during that time.
(Source: FAST Graphs EPD Data)
That’s because this is contracted cash flow… essentially, Exxon is reserving capacity on this pipeline network.
So even if oil is negative and stays negative – if there was another pandemic of some kind – enterprise is going to keep getting paid by the likes of Exxon, Chevron, and BP… A-rated and AA-rated companies.
And that’s how even when the yield was 17%, we were pounding the table for our members and telling them to buy, buy, buy… because there is a term for people who buy this stock at a double-digit percent yield – retired already.
So this is a huge opportunity.
We can see very steady growth above in the distribution as expected for an A-rated company.
But now let me show you, just like we did last week, how we can look under the hood to make sure that this is in fact one of the safest 7.5% yields on Wall Street.
Okay. So let’s quickly take a look at the balance sheet.
Remember, this is looking under the hood. This is the blood test of finance.
(Source: FactSet EPD Balance Sheet Data)
Now, 3.35. This is the debt divided by cash flow.
Less than five is what rating agencies want to see.
Now, per their new policies, they’re targeting a three, which is insanely safe.
And headed down to 3.1 as you can see above.
This is why the S&P just upgraded them to the first A-credit rated company in the history of EPD’s industry.
We can also see $5 billion in cash and borrowing power.
(Source: FactSet EPD Balance Sheet Data)
So plenty of opportunities if they need it.
And they have very well staggered bond maturities. The y-axis is in millions.
(Source: FactSet EPD Balance Sheet Data)
There is no year when they have a giant balloon payment on debt that could put them into bankruptcy.
And notice how most of these years it’s around $1 to $1.2 billion.
Now after distributions or tax deferred dividends, they still have so much free cash left over that they could pay off this debt with cash if they wanted to.
We can see that their debt is pretty much all unsecured.
So they have all these assets in case of some kind of an emergency. So if the cash got completely cut out, they could borrow against their assets to keep that distribution safe.
And now this is really exciting… they have not one, not two, but three 55-year bonds.
(Source: FactSet EPD Balance Sheet Data)
Now, remember last week when I talked about how the U.S. government went to the bond market and said, “We’d like to sell 40 or 50 year bonds”?
And how the bond market laughed and said, “No, no, no, we’re not having any of that”?
Well, when EPD said, “We would like to sell 60-year bonds.”
The bond market essentially said, “We will be oversubscribe” – to the point that EPD did it three times.
Now, of course, we already talked about the credit rating, the best in the history of the industry.
But the rating agencies will only review something if there’s a major deal announced or a major debt issuance – some kind of a major event (such as the pandemic).
So another way we can examine a company is to look at the daily 24-hour updates via the credit default swaps.
These are the publicly traded insurance policies that bond investors are taking out just in case rating agencies are wrong and there is a default on the debt.
For the next ten years, its just under 1%.
And for the next 30 years, its just under 3%.
That’s very consistent with the 2.5% 30-year default risk that S&P gives EPD’s fundamentals right now.
But here is where we are really able tell you when a company is a screaming hot buy… and when the wheels are falling off the bus.
Notice the purple line below. This is the five-year fundamental bankruptcy risk. And it is rock steady at about 0.6%.
(Source: FactSet EPD Balance Sheet Data)
Now, notice the price crashing down, then skyrocketing, then crashing again.
That’s what happens on Wall Street. The stock price can go up or down as much as 30% in a single day.
But that’s just noise.
Stock prices are vanity, cash flow is sanity. And safe dividends are reality.
So we can see here basically that we’ve got the bond markets saying everything is fine. The ups and downs are all noise.
In the pandemic for example, our team analyzed the news coming in from Bloomberg… News coming in from Google… And the news coming in from FactSet.
EPD’s management was backing up the truck and buying the stock by the tens of millions.
We put all of this together in our 3,000-point safety and quality model so we could monitor the fundamental data every single day as the news breaks.
And this is how we can look at a company such as Enterprise and say this is absolutely one of the safest 7.5% yields on Wall Street that you can buy.
You buy it and sleep well at night.
Recession or no recession next year.
Or God forbid, another pandemic some time in the future.
It doesn’t matter… unless there is nuclear war and the world actually ends.
This is a dividend that you can trust.
In fact, EPD management even says they have a plan to get this from a 25-year dividend growth streak to a 50-year dividend growth streak in 2048.
And that is a plan that the bond market is so confident in that they’re willing to invest tens of millions of dollars into it.
So this is just one example of the way we look at not just ultra-high yields, which you can find that anywhere.
This is how we find the world’s best ultra-high yield blue chips for you… so that no matter what the economy or the stock market is doing, you can sleep well at night… knowing that you’re on the road to retiring in safety and splendor.
I want to thank you for joining us for this week’s video update, and I hope you join us next week when we showcase more ways that we can help you, Fortress member, to achieve your financial dreams.
And until then, I want to remind you to please send us your questions and comments so I can respond to them in these videos.
Just remember, I can’t provide individualized investment advice.
I can’t wait for you to join us again next week.
Until then, this is Adam Galas, wishing you and your family safe investing and a healthy, happy, and relaxing weekend.
