Login | August 20, 2018

EPD and plastic bags

MALCOLM BERKO
Taking Stock

Published: May 15, 2018

Dear Mr. Berko: What do you think of Enterprise Products Partners? I want to buy a good income stock (at least 6 percent) with a safe dividend that should increase each year. A stockbroker suggested this stock, and I'd appreciate your opinion. Also, I am on an anti-plastic bag campaign and would like to sell a stock short that makes these terrible bags, which cause serious and enormous environmental damage. Please give me some names of companies that I could sell short. -- TC, Indianapolis

Dear TC: I remember the 1950s, '60s and '70s, when Kroger cashiers put bread, bananas, bacon, beans, bologna, butter and beef in 10-gallon paper bags, which we used to line our kitchen garbage cans. In the late 1970s, single-use T-shirt plastic bags appeared on the scene. They weren't big enough for the kitchen garbage can (bigger bags came later), but they fit well in the smaller wastebaskets in various rooms of our home. And it wasn't long before non-reusable plastic bags (from the large black 60-gallon trash bag to the small clear plastic sandwich bags) became necessary products in our homes and businesses. Most of these plastic products end up in landfills, taking 450 to 500 years to decompose while leaking pollutants into the soil and water. It's estimated that there is 170 million tons of plastic debris floating in our oceans, threatening the safety of marine life, and 9 million additional tons of plastic is added each year. The average American consumer throws away 10 bags a week, and the pollution problem is becoming worse, worser and worserer!

According to a prominent adviser in the Trump administration (he may not last the summer), the best way to solve the problem would be to charge a nickel for each plastic bag used. I recall when empty beer bottles could be returned for 2 cents. That was in the early '50s, and we seldom saw a dirty bottle on our streets. There's a change in the air. We know it's necessary, but it probably will be too slow in coming. Your idea to short a manufacturer of plastic bags makes sense, but there are no publicly traded plastic bag companies. This is a polluting industry, and lobbyists have plenty of cash encouraging Congress to oppose ameliorative legislation. As Euell Gibbons exclaimed, "I've never met a congressman who wouldn't take a bribe." Euell may have died from indigestion in 1975 while eating a pine tree.

There are many makers of plastic bags, including ANS Plastics, International Plastics, Checker Bag, Custom Poly Packaging and the $9 million-revenue company Shadow Plastics, which is home-ported in bucolic Rice Lake, Wisconsin, a delightful community. But none of them is public, so none can be shorted.

Enterprise Products Partners (EPD-$27), a $31 billion master limited partnership, is one of the largest providers of natural gas processing, fractionation, transportation and storage services in the U.S. And the current distribution has increased every year for 10 years, from 97 cents in 2007 to $1.71 last year, providing a 6.6 percent yield. Management expects bottom-line growth to improve markedly this year as earnings gain traction and as various corporate initiatives under construction are completed and begin to generate attractive fees. During the past few years, management has put a lot of emphasis on increasing its participation in the domestic shale market, investing hundreds of millions of dollars to do so. And it's paying off, as management projects revenues to rise by 20 percent this year and 10 percent in 2019. Very fortunately, EPD has a low capital cost; the average interest rate on EPD's $23 billion of debt, maturing in over one year, is 4.3 percent. That's impressive for a company with a BBB credit rating. Be mindful that a savings of 1 percent on $23 billion is $230 million, which ain't chopped liver!

EPD is the largest and perhaps one of the best-managed MLPs in the country; 22 of the 24 analysts following the company have a "buy" recommendation on it. Zacks, Morgan Stanley, Credit Suisse, Thomson Reuters, Argus Research and Standard & Poor's have such a recommendation on EPD, and I agree with them. So have at it!

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.


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