When Wall Street gets its teeth into a story, it can lead to strange outcomes. For example, Kinder Morgan (NYSE: KMI) has seen a material price advance and now yields a relatively tiny 4.1%. You can do over two percentage points better with investments in its midstream energy peers Enterprise Products Partners (NYSE: EPD) or Enbridge (NYSE: ENB).
And that’s just the top-level view of why these two midstream giants are better choices than Kinder Morgan. Here’s what you need to know.
Units of Kinder Morgan have risen around 50% over the past year, more than twice as much as Enterprise or Enbridge. Although you can argue about whether or not that swift advance was justified, what is very clear at this point is that Kinder Morgan’s 4.1% yield is notably below the 6.4% you would get if you bought Enterprise and the 6.2% dividend yield from Enbridge.
If you are looking for a high-yield midstream investment, Kinder Morgan simply doesn’t stack up as well on the income side of the equation. But don’t stop there, because Kinder Morgan has some other negatives that need to be considered when it comes to distributing cash to unitholders.
First off, in late 2015, it told investors to expect a dividend increase of as much as 10%. And a couple of months later, it announced that the dividend would instead be cut by roughly 75%.
The next big letdown came in 2020 when it had told investors to expect a dividend increase of 25%. But when push came to shove, the master limited partnership only came up with a 5% hike.
The connecting factor here is that, in both periods, the energy sector was facing headwinds. So just when unitholders would most want management to live up to its word, they were disappointed.
By comparison, Enterprise Products Partners has increased its distribution every year for 26 consecutive years. Enbridge has increased its dividend every year for 30 consecutive years. That means these two competitors to Kinder Morgan passed along increases in both 2016 and 2020, despite the headwinds in the energy sector.
If dividend consistency is important to you, this fact alone should be enough to convince you to avoid Kinder Morgan and dig into Enterprise and Enbridge. But there’s more to like about each of them.
Both Enterprise and Enbridge are North American midstream giants, with vital infrastructure assets that would be difficult to replace or displace. They provide integral services — via the pipeline, storage, transportation, and processing assets they own — that the energy sector simply can’t operate without. The fees they charge for the use of their assets provide reliable income in both good energy markets and bad.
