On the Oct. 6 Lightning Round of CNBC’s “Mad Money,” Jim Cramer defended a high-yield energy stock that has recently dropped due to rising interest rates.
Since Treasury yields are rising and income stocks are under pressure, buying the dip has become a harder choice for investors.
However, Cramer’s answer to a caller about this energy stock suggests the recent weakness could be a buying opportunity for patient investors.
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Jim Cramer tells investors to buy Enterprise Products Partners after the dip
When the caller asked Cramer about Enterprise Products Partners (EPD), he said he still likes the business, calling EPD “a really well-run company” worth owning, CNBC reported.
…I think you should own it.
Cramer has hosted “Mad Money” since 2005, and he has spent more than two decades giving his opinion on different stocks on live television. He has backed EPD for years, and he even once called it his “absolute favorite” midstream pipeline stock, Insider Monkey reported.
Enterprise Products Partners is a pipeline operator. It owns pipelines covering about 50,000 miles across North America. The company then charges energy producers and consumers a fee for helping them move and store their crude oil and natural gas through those pipelines.
So EPD is basically a middleman, with its biggest segment being NGL Pipelines & Services. This is why it is often described as an NGL company. It’s also why investors treat the stock as a way to earn long-term dividends.
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Why EPD stock recently fell, even as the business stayed strong
EPD shares fell about 9.19% in the 30 days before Cramer’s call, according to Simply Wall St.
The drop was mostly due to the bond market, and EPD’s business held steady during the period.
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Recently, the 30-year U.S. Treasury yield has surged to a multi-year high, trading in a range of 5.6% to 5.7%, and while it has not yet reached 6.0%, financial analysts note that continued upward momentum could eventually push yields toward that benchmark.
When government bond yields rise this quickly, income investors tend to sell dividend stocks and buy safer Treasuries, which usually causes stocks like EPD to fall, even when the business is strong.
EPD’s 28-year streak of distribution hikes and $6.5 billion project pipeline
EPD has raised its dividend payout for 28 years in a row, which is one reason it’s popular among income investors. A 28-year streak is something only a few energy companies can match, and it signals that the business can keep paying investors, even when there’s an oil crisis, recession, or increase in rates.
The company has about $6.5 billion of major projects under construction, including Permian gas processing plants, NGL projects, and export terminal expansions. It also plans to spend between $2.9 billion and $3.4 billion on more growth projects in 2026.
Once these projects are completed, EPD can start charging fees and earning steady income from them as well.
What EPD buyers should think about before adding shares
Wall Street’s average price target on EPD is $40.91, which is already quite close to the current share price of about $37.26. However, the company’s dividend yield of about 6% is higher than what most Treasuries usually pay.
If long-term bond yields keep rising, dividend stocks like EPD could remain weak for months, and anyone who buys the stock now might see the price drop a bit more before it finally bounces back.
In addition, fluctuations in oil and gas prices, along with changes in how much natural gas the U.S. ships overseas, could increase the time needed for EPD’s new projects to begin making money.
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