Enbridge Inc. (ENB Quick QuoteENB - Free Report) and Kinder Morgan Inc. (KMI Quick QuoteKMI - Free Report) are two midstream energy giants. Given the very nature of their business model, where shippers utilize their oil and gas storage and transportation assets, the companies are less vulnerable to volatility in commodity prices.

Over the past year, ENB has risen 35.7%, outperforming the industry’s 35.4% growth but trailing KMI’s impressive 51.5% surge. However, this outperformance alone doesn't necessarily put Kinder Morgan in a stronger position than Enbridge. To build a solid investment case, it’s important to dive deeper into the underlying business fundamentals and long-term outlook of both companies.

One-Year Price Chart

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Enbridge’s Cash Flows are More Insulated Than KMI’s

The minimization of commodity price volatility and volume risks in Enbridge’s business model stems from regulated or take-or-pay contracts, which support 98% of its EBITDA. Further, more than 80% of this midstream energy firm’s profits are generated from activities where the company can automatically raise prices or fees. Thus, ENB, a leading midstream energy player, is keeping pace with rising costs, which protects its earnings and dividend payments even in a high-inflationary environment.

This stability in the business model is contributing to its investment-grade credit rating while providing long-term visibility into cash flows.

Coming to Kinder Morgan’s story, as a leading midstream service provider, the company’s pipeline and storage assets are secured under long-term take-or-pay contracts, generating almost two-thirds of its EBITDA. These contracts ensure that shippers pay for the capacity reserved, whether they utilize it or not, which provides a steady stream of cash flows. Thus, KMI also generates stable cash flow, but this is still less than ENB’s level of insulation.

Enbridge Boasts a Stronger Dividend Track Record

Enbridge has a strong track record of returning capital to shareholders through dividend payments. For 30 consecutive years, the midstream energy giant has increased its dividends to reward shareholders, earning a prestigious position among the few dividend aristocrats in the energy space.

Looking ahead, Enbridge believes it could achieve approximately 5% annual business growth through the end of 2030. This solidifies ENB’s strong business outlook, thereby securing incremental cash flows. Thus, long-term shareholders can expect steady and handsome dividends from the midstream major.

In contrast, Kinder Morgan follows a more conservative dividend policy. While it raised its dividend by nearly 2% in the first quarter of this year compared to the previous quarter, its earlier dividend cut in 2015 may continue to be a red flag for income-oriented investors.

Among ENB & KMI, Which Stock Has the Edge Now?

Thus, it seems that Enbridge’s overall business is better placed than Kinder Morgan's and, hence, probably for this reason, investors are willing to pay a premium for ENB over KMI, as reflected in the valuation snapshot.

ENB is currently trading at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 15.05x. This represents a premium compared with KMI’s 14.54x.

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That doesn’t mean that investors should rush to buy shares of ENB right away, as the company has significant exposure to debt capital, with a total debt-to-capitalization of 59.13%. However, those who have already invested in the stock should retain it. ENB currently carries a Zacks Rank #3 (Hold), You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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While #3 Ranked Kinder Morgan also generates stable fee-based revenues and is worth holding, Enbridge shareholders are likely to benefit more compared to those holding KMI stock.