Mars Birds
Enbridge (New York Stock Exchange:ENB) and Kinder Morgan (New York Stock Exchange:KMI) both have delivered slow but consistent dividend growth over the past three years, in addition to the broader midstream sector (AMLP) during that period:
That being said, KMI has significantly underperformed ENB and even AMLP over the long term, thanks in large part to a disastrous dividend cut a few years ago.
In this article, we will compare ENB and KMI side by side and give you our opinion on which one is better to buy at the moment.
Comparison with ENB stock KMI stock: Business model
ENB’s large midstream infrastructure business is well diversified across numerous segments of the midstream space, including liquid pipelines, gas transmission and distribution, and a growing renewable power generation portfolio. ENB also recently made $14 billion Acquired multiple natural gas operations from Dominion Energy (D), the largest natural gas company in North America.
In addition to being the largest natural gas utility in North America, we own the longest natural gas transmission pipeline network in the United States, the largest natural gas distribution operation in North America, and the longest crude oil pipeline network.
As a result of our focus on utilities, the majority of our post-closing pro forma EBITDA with Dominion Energy will come from regulated assets, with substantially all of the remaining EBITDA coming from long-term take-or-pay agreements. It will be done. Almost all counterparties are investment grade. As a result, our cash flow remains extremely stable regardless of macroeconomic or energy industry conditions. As a result, the company boasts a very impressive dividend growth rate over his 28 years, making it perhaps the most reliable dividend growth stock in the industry.
Although KMI is not as large as ENB and doesn’t have nearly the same dividend growth track record, it still owns very high quality assets. The company is primarily a leading natural gas infrastructure company, with 62% of its EBITDA derived from assets serving this segment. The company benefits from economies of scale and strategically located assets, with North America’s largest CO2 transport capacity with approximately 1,500 miles of CO2 pipeline, 140 terminals and 16 Jones Act vessels. The company is an integral part of the North American energy industry, operating the largest independent terminal in the world. , the largest natural gas transmission network with approximately 70,000 miles of pipeline that provides approximately 15% of U.S. natural gas storage and transports approximately 40% of U.S. natural gas production, and approximately 10,000 miles of refined products. The largest independent refined product transportation network with the largest and poorest pipelines. Additionally, the company is investing in the growth of its energy conversion business, with a particular focus on its RNG production capacity.
Similar to ENB, the company has a very stable cash flow profile, with 93% of its EBITDA coming from long-term contracts that bear commodity prices. Although it does not have the exposure to regulated utilities that ENB enjoys, it still maintains sufficient cash flow stability in the face of volatile energy prices and changing macroeconomic conditions.
Comparison with ENB stock KMI stock: Balance sheet
ENB has one of the highest credit ratings in the midstream sector, with a BBB+ rating from S&P. The company is able to maintain this high credit rating despite having much higher balance sheet leverage than many of its lower-rated peers. This is due to substantial utility exposure, a very high quality cash flow profile with little or no commodity price exposure, and counterparties such as: Almost all are investment grade. One of the beauties of ENB’s balance sheet is that its large debt has fixed interest rates and won’t mature for decades (including into the late 21st century). This makes the cost of debt fairly predictable for years to come, further increasing the stability of distributable cash flows.
Meanwhile, KMI is slightly behind ENB in its BBB credit rating, has a much lower leverage ratio of 4.1x, and is expected to end this year with a net debt-to-adjusted EBITDA ratio of 4.0x. Considering his long-term target is 4.5x, he has a lot of flexibility to buy back shares or invest in growth projects.
Both businesses generate significant cash flow in excess of dividends, allowing retained cash flow to cover much, if not all, growth capital expenditures, when refinances come due or when major acquisitions are made. can rely only on the bond market. .
Comparison with ENB stock KMI stock: Dividend outlook
ENB’s dividend growth rate is expected to be 3-5% per year for the foreseeable future. Prior to the Dominion Energy acquisition announcement, analysts expected ENB’s dividend to grow at a CAGR of 3.1% through 2027. That said, ENB’s CEO believes that the acquisition of Dominion Utilities will further enhance ENB’s ability to grow dividends over time, in addition to dividend growth. The quality of its earnings. Overall, we think ENB is likely to grow its dividend at his CAGR of 3-4% over the next few years.
KMI, on the other hand, has opted for a lower dividend growth rate as it has focused on deleveraging, investing in a number of new projects, and opportunistic share buybacks. This situation should improve somewhat going forward as growth capex has decreased a bit and the company’s leverage has reached a very satisfactory level. That said, analysts don’t think it will grow at more than a 3% CAGR through 2027, and so far KMI has given investors no reason to think it will grow any faster than that.
Comparison with ENB stock KMI stock: Valuation value
KMI is clearly cheaper than ENB on both an EV/EBITDA and P/DCF basis. KMI’s current EV/EBITDA is a 11.2% discount to its 5-year average EV/EBITDA, and ENB’s current EV/EBITDA is a 6.5% discount to its 5-year average EV/EBITDA .
That said, ENB offers an 80 basis points higher dividend yield than KMI, so income investors prefer higher yields even if the underlying cash flow valuations are higher. There is a possibility.
| metric | ENB | KMI |
| EV/EBITDA | 11.66 times | 8.93 times |
| EV/EBITDA (5-year average) | 12.47 times | 10.06 times |
| P/2023E DCF | 8.59 times | 7.87 times |
| NTM dividend yield | 7.7% | 6.9% |
Key points for investors
Both ENB and KMI have strong trading partners, very low short-term commodity price cash flow exposure, strong investment-grade balance sheets, a clear path to dividend growth over the next few years, and an attractive current Dividend yield and discounted valuation compared to historical averages.
That said, ENB’s cash flow profile is arguably higher quality, making it a better dividend stock, given its higher exposure to regulated income and investment-grade counterparties, its current dividend yield and growth profile, and its track record of dividend growth. It looks like it is. On the other hand, considering that KMI’s leverage ratio is much lower than ENB’s, there is no doubt that KMI’s balance sheet is better than ENB’s despite its lower credit rating. Additionally, its valuation is significantly lower than ENB’s, and it retains significantly more cash flow, which it uses to buy back shares and invest in attractive growth projects.
Additionally, ENB is a 1099 Canadian company (with relevant tax considerations) that declares dividends in Canadian dollars, whereas KMI is a 1099 American company (with relevant tax circumstances) that declares dividends in USD. Therefore, investors should keep this in mind. before investing.
We like both and rate both as very attractive, low-risk buys. Dividend-focused investors who are comfortable owning Canadian stocks will likely prefer ENB, while value investors and investors who prefer owning American companies will likely prefer ENB. You probably prefer KMI.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
