Analysis: Investment Comparison: Kinder Morgan vs Enterprise Products Partners – Dividend Yield Perspective
In the vast landscape of the midstream energy sector, two giants stand out—Kinder Morgan and Enterprise Products Partners. Both companies, with market caps in the $60 billion to $70 billion range, boast some of the largest asset portfolios in North America. They primarily operate between the upstream (energy production) and the downstream (chemicals and refining), acting as 'toll takers' by charging fees for moving oil and natural gas around the world.
**Kinder Morgan: A Tale of Challenges and Recovery**
Kinder Morgan, in 2016, faced a significant challenge when it cut its distribution by 75%. The move was aimed at strengthening its balance sheet and investing in growth opportunities, but it was detrimental to income investors, especially since management had previously indicated a potential dividend increase of up to 10%. Despite efforts to restore dividend growth, the company fell short of its planned increases during the 2020 energy market downturn amid the COVID-19 pandemic, disappointing dividend investors once more.
**Enterprise Products Partners: Consistency Amidst Volatility**
Enterprise Products Partners, on the other hand, has demonstrated remarkable consistency in maintaining a dividend growth streak. The company has increased its distribution annually for 26 consecutive years, including during challenging periods such as the 2016 oil downturn and the 2020 pandemic. This consistency is underpinned by its robust financial structure, including an investment-grade balance sheet and a distributable cash flow (DCF) coverage ratio of 1.7x, providing it with the resilience to weather market shocks and maintain its dividend payments.
Comparatively, Enterprise Products Partners stands out for its reliability and consistency in maintaining dividend growth, even during industry downturns. Kinder Morgan, however, has faced challenges in maintaining dividend stability during such periods.
While both companies offer attractive and reliable business models in a volatile industry, Enterprise Products Partners provides a more reliable income stream to investors. Moreover, it offers a higher yield compared to Kinder Morgan. However, it's essential to remember that Kinder Morgan has improved its financial and business shape since 2016.
In conclusion, while both Kinder Morgan and Enterprise Products Partners are significant players in the midstream energy sector, they are not interchangeable. Investors seeking a more reliable income stream might find Enterprise Products Partners a more appealing option, while those who believe in Kinder Morgan's potential recovery might find it an attractive investment. It's crucial to conduct thorough research and consider individual investment goals before making a decision.
[1] Source: The Motley Fool (2021). Kinder Morgan's Dividend Cut Was a Smart Move. Retrieved from https://www.fool.com/investing/2021/01/14/kinder-morgans-dividend-cut-was-a-smart-move/ [2] Source: Seeking Alpha (2021). Enterprise Products Partners LP (EPD) Q4 2020 Earnings Call Transcript. Retrieved from https://seekingalpha.com/article/4378323-enterprise-products-partners-lp-epd-q4-2020-earnings-call-transcript [3] Source: Yahoo Finance (2021). Enterprise Products Partners LP Dividend Date & History. Retrieved from https://finance.yahoo.com/quote/EPD/dividends?p=EPD
- Investors seeking growth opportunities in the finance industry, specifically within the midstream energy sector, might find Kinder Morgan appealing, given its efforts to recover after a difficult 2016, during which it cut its distribution by 75%.
- For those prioritizing a more consistent dividend growth and a higher yield, Enterprise Products Partners may be the preferred choice, given its 26 consecutive years of annual distribution increases and a robust financial structure, even in volatile market conditions.
- Diversifying one's portfolio within the finance industry could mean investing in both Kinder Morgan and Enterprise Products Partners, given their significant roles in the midstream energy sector, while paying close attention to economic indicators and recent industry trends before making a decision.
