Depriciation is a NON-cash expense which is subtracted from revenues to get profit. On a cash basis as in cash flow it is not subtracted so it is there to pay the high dividend. And since the pipeline does not physically depreciate at the rate of accouting deprecation the payout continues for a long time.
> I'm sure someone can explain how this company > can earn $.96/sh and pay out $3.70/sh. Can > anyone help with this?
Let me try...
Let's say you have a taxi cab that you just bought for $10,000 and plan to depreciate it over 10 years. When you buy it, your financial reporting does not show a $10,000 expense; it shows a $10,000 decrease in cash and a $10,000 increase in plant, property, and equipment. Your income statement is not affected, because purchase of capital equipment is not treated as a period expense.
One year goes by, and you record your first depreciation expense in the amount of $1,000. However, this $1,000 is not a cash expense; it doesn't take anything out of your pocket. So, while your income takes a $1,000 hit, your cash flow doesn't.
In case of EEP, in 2004 it had net income of $138 million and depreciation expense of $120 million, which was more than enough to pay $191 million in distributions to unit holders.
For more details, refer to EEP's atatement of cash flows: