The Best High-Yield Midstream Stock to Invest $10,000 in Right Now

Enterprise Products Partners (NYSE: EPD) has a distribution yield of around 6.8% today. Energy Transfer (NYSE: ET) has a higher yield at 7.5%, and USA Compression Partners (NYSE: USAC) is even higher at 8.3%.

But if you are looking for a high-yield midstream stock, you need to think about more than just the yield. Here's why Enterprise Products Partners could be the best high-yield midstream option despite a lower yield.

What does Enterprise Products Partners do?

Like most midstream players, Enterprise owns energy infrastructure, like pipelines. It charges energy producers fees for the use of that infrastructure.

So, in this regard, it isn't materially different from Energy Transfer or USA Compression Partners. They are all toll takers in their own way, which tends to produce reliable cash flows. All three are also considered master limited partnerships (MLPs), which means they all have added tax-filing implications that investors will need to contend with.

But all three of these companies are not operated in the same way.

Image source: Getty Images.

For example, Energy Transfer cut its distribution in half in 2020 during the pandemic to reduce balance sheet leverage, which isn't a bad goal. However, that choice coincided with an oil downturn and a period when dividend investors would likely have preferred a little payout consistency in their lives.

USA Compression Partners' distribution, meanwhile, hasn't changed since 2016. That isn't a bad thing because this MLP explains that it "has a history of leveraged growth" and its balance sheet is below investment-grade. In other words, there's notable risk in USA Compression Partners' business model. Playing it safe is the right call on the distribution front, but it doesn't change the fact that there's more financial risk for unitholders.

By comparison, Enterprise Products Partners has increased its distribution for 26 consecutive years. Although the yield Enterprise offers is lower than that of Energy Transfer and USA Compression Partners, Enterprise has proven to be a much more reliable income investment.

There's a lot to like about Enterprise

If you are putting $10,000 on the line, you want to make sure you are buying a good business. Enterprise's distribution streak is the first highlight that it is a good business. It increased during the pandemic, 2016's energy headwinds, the Great Recession, and the dot.com crash, among other notable difficult periods during the last quarter-century. That didn't happen by accident.

Right now, Enterprise is in great shape, too. It has an investment-grade balance sheet, and the distribution is covered 1.7 times over by distributable cash flow. A lot would have to go wrong before a cut were on the table.

Meanwhile, management has a $7.6 billion capital investment plan. It seems reasonable to expect more distribution increases as those projects come online and start producing cash flow over the next few years. So not only has Enterprise been a more rewarding income investment historically, but it is also highly likely to keep rewarding long-term investors.

There's more to consider than just yield

For most dividend investors, the goal is a combination of high yield, some sort of income growth over time, and income reliability. If all you focus on is high yield, you may end up buying something that doesn't really fit your portfolio goals.

Which is why, if you are looking for a high-yield midstream investment today, Enterprise Products Partners is really one of the best options for balancing the many competing goals you are likely trying to achieve.

Should you invest $1,000 in Enterprise Products Partners right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.