With yields of roughly 10%, Enterprise Products Partners (NYSE: EPD) and Magellan Midstream Partners (NYSE: MMP) are certainly offering a level of income that will attract dividend-focused investors. But a high yield alone doesn’t tell the whole story. Is one of these two historically conservative midstream players better than the other, or are the high yields signs of brewing trouble? This quick primer will help you decide.
The first big question for investors is whether Enterprise and Magellan are even worth looking at, given that oil is in the doldrums. The answer is yes. Both of these master limited partnerships generate the lion’s share of their operating margins (85% or more) from fee-based businesses. That means they get paid for the use of their assets; the price of what’s moving through the midstream assets they own isn’t the most important factor.