By: Jon Costello
The recent rise in interest rates has led me to reassess yields available in midstream equities. On October 19, the 10-year Treasury yielded 5.14%, more than 100 basis points above its February level.
I have therefore been reviewing some of my longstanding holdings with greater attention to the risks that could undermine my investment theses. I want to consider what could go wrong, even with businesses I know well. I began with Enterprise Products Partners, L.P. (EPD), an important income holding I have recommended for years, including as recently as February.
The issue is whether EPD’s 6.1% distribution yield is attractive when 10-year Treasury securities yield about 5.1% without credit risk. Does distribution growth make the difference?
After this review, I will keep my units for income, but won’t add at the current price of $39. My assessment of EPD’s financial strength remains intact, but its valuation no longer supports additional buying.