Crude oil and natural gas prices have become increasingly volatile as investors weigh the demand and supply outlook. As a result, this volatility has hit oil and gas companies, with the Vanguard Energy ETF (VDE) falling by 2% in the past three months. In such a situation, investors can consider investing in MLPs, which tend to be unaffected by these movements. This Kinder Morgan vs Enbridge comparison will look at the better buy.
Kinder Morgan vs Enbridge
Enbridge (NYSE: ENB) and Kinder Morgan (NYSE: KMI) are leading players in the oil and gas transportation industries. The two are major players with a market cap of over $78 billion and $39 billion, respectively. Kinder Morgan’s revenue and profit in the past four quarters was $19.2 billion and $2.55 billion. Enbridge generated $39.3 billion and $2.2 billion, respectively.
Enbridge is known for its vast natural gas pipeline in the US. Data shows that it has the second-longest natural gas pipeline network and the longest oil pipeline. These pipelines and its contracts make it possible for the company to make money in virtually all conditions.
The same is true for Kinder Morgan, a company that owns 140 oil terminals and over 82,000 miles of pipeline. The company has strong contracts, with ~90% of its EBITDA coming from long-term contracts that are resistance to price cycles.
KMI and ENB profitability and valuation
In terms of profitability, the two companies have similar gross margins of about 38%. But Kinder Morgan has a net income margin of 13.27% compared to Enbridge’s 5.63%. Kinder Morgan also has faster forward revenue growth of 6.95% vs Enbridge’s 1.86%.
Meanwhile, in terms of valuation, Kinder Morgan has a forward PE multiple of 15.57 compared to Enbridge’s 17.37. For MLPs, I believe that the forward EV to EBITDA is a better valuation gauge. KMI has a forward EV to EBITDA of 9.49 compared to ENB’s 12.13. Therefore, in this regard, it seems like Kinder Morgan is a bit undervalued.
Most people invest in these companies because of their high dividend yields. A look at the two shows that they have similar forward dividend yields of about 6.27%. To differentiate the two, we should look at their dividend growth. Analysts expect that Kinder Morgan’s CAGR dividend growth to 2027 will be 2.6% while ENB will be 3.7%. Kinder Morgan has made commitments to more share buybacks.
Better buy?
Therefore, with Kinder Morgan and Enbridge, we have two companies that are doing relatively well and with similar metrics. However, I believe that Kinder Morgan is a better investment. For one, Enbridge is a Canadian company while Kinder Morgan is based in the US. As a result, Enbridge is subject to more environmental requirements and withholding taxes on dividends.
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