The First Energy Stock I Plan to Buy in 2026

Enterprise Products Partners placed roughly $6 billion of growth projects into service in H2 2025 and expects 2026 capital spending to fall to $2.2–$2.5 billion from a $4.5 billion pace in 2025, freeing about $2 billion of cash. The deceleration should materially boost free cash flow and fund higher distributions (current yield 6.8%, 27 consecutive years of increases, +3.8% last year), expanded buybacks (buyback authorization raised to $5 billion with $3.6 billion remaining) and potential debt reduction; balance sheet remains strong with 3.3x leverage and A-/A3 ratings. Strategic projects include Bahia expansion to 1.0 million bpd and a 92-mile Exxon-linked pipeline extension (Exxon taking 40% interest), with limited large projects beyond 2026, positioning the MLP for increased capital returns and M&A optionality.

Analysis

Market structure: Enterprise Products Partners (EPD) is a clear near-term winner — $6bn of projects online in 2H25 plus 2026 capex falling to $2.2–2.5bn frees roughly $2bn of cash, boosting FCF and giving EPD scope to raise its 6.8% distribution, accelerate buybacks ($3.6bn remaining) and pursue M&A. Customers (Permian/Haynesville producers) gain takeaway capacity (Bahia, NRT, Mont Belvieu fractionation) which should compress regional differentials; NGL supply increases, however, create downside pressure on NGL prices and fractionation margins. Exxon’s 40% participation in the 2027 pipeline extension de-risks capital intensity and shifts some funding risk off EPD.

Risk assessment: Tail risks include a >30% collapse in oil/gas prices reducing volumes, a major operational incident at NRT/Bahia, or adverse FERC/state permit changes tightening throughput — any could force distribution underperformance. Time horizons: immediate (days) — market reaction to any buyback/distribution announcements; short (weeks–months) — 1H26 plant start-ups and distribution cadence; long (2027+) — Bahia expansion/exxon JV execution. Hidden dependency: cash flow sensitivity to NGL vs gas spreads and minimum-take contract terms; monitor throughput utilization and frac spreads as second-order drivers.

Trade implications: Tactical: accumulate EPD units (EPD) as a core income position — target 2–3% portfolio weight, scale in through Jan–Mar 2026 ahead of 1H26 startups; set a profit target of +25–35% or an upside distribution raise >6% and stop-loss at −15%. Pair trade: long EPD (2% weight) / short OXY (1.25% weight) to hedge commodity-price exposure while capturing midstream stability. Options: buy Jul–Dec 2026 call spreads 15–25% OTM to capture the 1H26 cash-flow inflection with defined risk; sell near-term covered calls post-distribution raise to harvest yield.

Contrarian angles: The market may underprice the risk that expanded NGL/natural-gas handling capacity depresses NGL prices by >15–20%, compressing fractionation margins and offsetting FCF gains; remember midstream cycles (2014–16) where overbuilds forced distribution cuts. EPD’s strong rating (A-/A3) and 3.3x leverage materially reduce but do not eliminate this risk. Monitor two thresholds: NGL frac-spread decline >20% YoY or throughput utilization <90% of nameplate for two consecutive quarters — these should trigger reevaluation of long positions.

Key Decisions for Investors

• Establish a 2–3% long core position in Enterprise Products Partners (EPD) between now and end of Q1 2026 to capture 1H26 project cash flows; target total return 25–35% by end-2026 and use a 15% trailing stop-loss.
• Implement a pair trade: long EPD (2% portfolio weight) and short Occidental Petroleum (OXY) at 1.25% weight to hedge commodity-price risk; rebalance after 1H26 plant startups or if EPD raises distribution >6%.
• Buy 6–12 month EPD call spreads (e.g., Jul–Dec 2026, 15–25% OTM) sized to risk no more than 0.5% portfolio capital to capture upside from 1H26 FCF realization; if implied vol drops >25% post-announcement, convert to covered-call overlay.
• Prioritize monitoring: (1) NGL frac spreads — if they fall >20% YoY for two consecutive months, reduce EPD exposure by half; (2) throughput utilization — if <90% for two consecutive quarters, cut exposure and re-evaluate credit risk.
• If EPD announces accelerated buybacks (>=$500m within a quarter) or a distribution raise >4% in an announcement window, add incremental 0.5–1% position and consider selling near-term covered calls to lock yield.