25% year-to-date (YTD) returns ain’t too shabby. But they’re not going to cut it when the competition is up by 142%. And that’s what we have going on with my pick for InvestorPlace.com’s Best Stocks for 2021 contest: Enterprise Products Partners (NYSE:EPD) stock.
Sure, blue-chip pipeline operator Enterprise Products Partners is up a very respectable 25%, roughly doubling the return of the S&P 500 thus far this year. But it’s a far cry from the 142% YTD return in OncoCyte (NASDAQ:OCX), Matt McCall’s pick for the year.
First things first: Congrats to Matt for finding a real gem of a stock. OncoCyte is a leader in genetic-based cancer screening. It’s possible to find truly amazing opportunities in the biotech space, and the quick returns in OncoCyte are proof of this.
But unfortunately, smaller biotech stocks like these can also give you heartburn. OncoCyte is a wildly volatile stock whose ultimate fate depends on the success of a small number of specialty drugs. Thus, you can’t — or at least you shouldn’t — put a lot of money into a stock this speculative.
In turn, let’s contrast this with Enterprise Products and EPD stock.
Enterprise Products isn’t exciting. It’s never going to change the world or cure a deadly disease, but it’s also wildly unlikely to ever cause you serious grief.
It’s a boring stock in a boring industry selling a boring product to boring industrial customers. In other words, i’s not a racehorse — it’s a workhorse. And that’s exactly why I like it.
With half a year left to go, I still believe I have a realistic chance of winning. But beyond whatever happens in 2021, EPD stock is one you can potentially own for years or even decades.
Overall, Enterprise Products is one of the largest energy infrastructure companies in the world with more than 50,000 miles of pipeline assets transporting mostly natural gas and natural gas liquids. Since going public in 1998, the company has grown its asset base from $715 million to close to $60 billion today. So, while the underlying business may be almost painfully boring, the growth of the company has been wildly exciting to watch.
EPD Stock Returning to Pre-Pandemic Levels
Moreover, I mentioned that Enterprise Products was boring. And a quick look at the stock ‘s trading history will show you exactly what I mean.
In the four years leading up to the novel coronavirus pandemic, Enterprise Products traded in a tight range between $25 and $30. Then, of course, COVID-19 struck. Like most energy stocks, Enterprise Products got obliterated, losing nearly two thirds of its value.
Over the course of the past year, though, the stock has slowly clawed its way back to the bottom of its old trading range. And simply returning to the top of the old trading range would represent a gain of more than 50% from our purchase price, not including cash distributions.
And about those distributions…
That said, this gets to the core of what I love about Enterprise Products. Apart from being a reliable growing company, it’s also an income powerhouse. At current prices, the stock yields a very attractive 7.5%. A yield that high is almost unheard of these days.
And here’s the most beautiful part of all. That payout is only likely to grow over time. Enterprise has grown its distribution by 50% over the past 10 years, easily staying ahead of inflation. And remember, the past decade has been a rough one for the energy sector. You certainly wouldn’t have known that from watching Enterprise Products raise its distribution every year with the reliability of a Swiss watch.
Ultimately, we can’t control what the market does. Enterprise may or may not finish this year strong. So we’ll just have to wait and see.
But I’ll say this. With the overall market looking jittery these days, a steady income payer with a long history of raising its payout looks awfully darn good. And that’s what investors get with EPD stock.
On the date of publication, Charles Sizemore has a long position in EPD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Sizemore, CFA is the principal of Sizemore Capital Management, a registered investment adviser based in Dallas, Texas specializing in income and retirement strategies.