EPD vs. KMI: A Closer Look at Which Midstream Stock Has the Edge

Yahoo

23-05-2025

Due to the nature of midstream business, companies and partnerships in the space have lower exposure to volatility in oil and gas prices. Thus, investors with lower risk appetites and stable income preferences generally favor midstream stocks over upstream companies.
Among the major players in this space, Enterprise Products Partners LP EPD and Kinder Morgan, Inc. KMI stand out. While Enterprise Products is set to generate additional fee-based earnings from $7.6 billion worth of major capital projects either currently in service or under construction, Kinder Morgan has a total active project backlog of $8.8 billion.
Image Source: Enterprise Products Partners LP
Now, the billion-dollar question is: Which midstream energy giant is better placed?
Enterprise Products' distribution coverage ratio is 1.7, indicating it generates 1.7 times the cash needed to pay its distributions to investors. This is quite impressive. In comparison, KMI hasn't provided an explicit coverage ratio. Nevertheless, the company's dividend payout is fully covered, as it paid a dividend of $650 million while generating net income attributable to KMI of $717 million in the first quarter and cash flow from operations of $1.16 billion.
When assessing the distribution or dividend yield of both stocks, EPD has consistently provided a higher yield than KMI over the past several years. Currently, EPD's yield of 6.7% surpasses KMI's 4.3%.
Image Source: Zacks Investment Research
In its recent Investor Deck, Enterprise Products mentioned that in the midstream space, it has the highest credit rating. As of March 31, 2025, the partnership had a total debt principal outstanding of $31.9 billion, with approximately 96% of its debt portfolio bearing a fixed rate and a long maturity of 18 years. Thus, it locks in today's interest rate with less short-term refinancing risk, showing smart and stable financial management.
Regarding KMI's balance sheet, the company had a net debt of $32.8 billion as of the March-quarter end, suggesting a leverage ratio of 4.1 net debt to adjusted EBITDA. This has placed the midstream company at the higher end of its target band of 3.5 to 4.5, indicating that its debt is more than four times its earnings before interest, taxes, depreciation and amortization.
Considering the net debt to EBITDA (forward 12 months) ratio, EPD's 2.97 is lower than KMI's 3.87. This means that it would take almost three years of earnings to pay off the debt for EPD compared to about four years for KMI.
Image Source: Zacks Investment Research
Along with the first-quarter transcript, EPD mentioned retaining distributable cash flow (DCF) of $842 million, which can be allocated for growth activities.
KMI had to increase debt by roughly $1 billion in the first quarter of 2025 to cover its spending.
However, with tariff concerns still weighing on the firms and long-term energy demand remaining uncertain, it would be better not to rush to bet on either stock. Shareholders of both midstream players should retain the stocks in their portfolios. Those holding EPD stand to benefit more from those who own KMI.
That's because Enterprise Products demonstrates stronger distribution safety, financial discipline and balance sheet resilience. Notably, both firms carry 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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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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