Title: Two Top-Performing Midstream Stocks to Invest In, with one to Steer Clear Of
When Wall Street gets hold of a story, it can lead to some peculiar outcomes. Take Kinder Morgan (KMI) for instance, which has seen a notable price hike, currently yielding a modest 4.1%. You can secure yields over 2 percentage points higher with investments in its midstream energy peers, Enterprise Products Partners (EPD) and Enbridge (ENB).
To understand why these two midstream giants are better options than Kinder Morgan, let's delve deeper.
The Kinder Morgan rise overlooks some critical facts
Despite Kinder Morgan's price surge of about 50% over the last year—more than twice as much as Enterprise and Enbridge—its yield is significantly less at 4.1%. If you're seeking high-yield midstream investments, Kinder Morgan may not be the best choice on the income front.
But Kinder Morgan's shortcomings extend beyond yield. In late 2015, the company promised a dividend increase of up to 10%. However, it soon announced a dividend cut by nearly 75%. The disappointing trend continued in 2020, when Kinder Morgan faltered on its promise of a 25% dividend increase, only delivering a 5% hike.
During these challenging times in the energy sector, Kind Morgan's poor reputation in dividend management is a red flag.
Enbridge and Enterprise offer consistent income streams
In stark contrast, Enterprise Products Partners has increased its distributed amount every year for two uninterrupted decades. Enbridge has even outdone this record, boosting its dividend every year for over three decades. Both companies managed to deliver increases in both 2016 and 2020, despite unfavorable energy sector conditions.
If a dependable income source matters to you, this fact alone should tilt your decision towards Enterprise and Enbridge over Kinder Morgan. But there's still more to like about these two competitors.
As vital North American midstream titans, both Enterprise and Enbridge own indispensable infrastructure assets. They provide integral services through their pipeline, storage, transportation, and processing resources that the energy sector cannot operate without. The steady revenue from these assets ensures a dependable income source in both good and tough market conditions.
Both Enterprise and Enbridge possess robust financial health, with investment-grade balance sheets and well-secured distributions. Their impressive track records highlight their resilience against adversity.
Enterprise is strictly a midstream player, serving as a direct alternative to Kinder Morgan. Enbridge's portfolio is slightly more varied, including natural gas utilities and renewable energy assets, offering a clean energy hedge.
Good price performance doesn't always necessitate a buy. Just because a stock soars rapidly doesn't mean it's the right investment. Factors other than rapid price growth, such as income yield, should be considered when analyzing Kinder Morgan. You may conclude that Enterprise or Enbridge present better income investment opportunities in this scenario.
In light of Kinder Morgan's questionable dividend management, where it failed to deliver promised increases and even had to cut its dividend significantly, investing in companies like Enterprise Products Partners and Enbridge might be a wiser choice for those seeking consistent income streams. Both Enterprise and Enbridge have robust track records of annual dividend increases, with Enterprise for two decades and Enbridge for over three decades, even during challenging market conditions.
