The geopolitical conflict in the Middle East has oil prices back in the headlines. Energy markets are in a state of flux, commodity prices are on the rise, and you are likely already seeing the impact at the gas pump. Even after the conflict ends, it will take some time for oil markets to stabilize again. Enterprise Products Partners (EPD +0.89%) and Enbridge (ENB +0.85%) are a way to sidestep oil prices while still investing in the energy sector. Here’s what you need to know.
Enterprise and Enbridge instead of crude oil
Enterprise and Enbridge operate in the midstream segment of the energy sector. They own the energy infrastructure, such as pipelines, that helps to move oil and natural gas around the world. This is a toll-taker business, with the companies charging fees for the use of their assets. The volume of energy flowing through their systems is more important than the price of the commodities they are moving.
Image source: Getty Images.
This changes the equation for investors in a big way, with both Enterprise and Enbridge being reliable cash flow generators even when oil prices are weak. The best examples of the business model’s reliability are Enterprise’s 27 consecutive distribution increases and Enbridge’s 31 annual dividend hikes (in Canadian dollars).
Enterprise and Enbridge are fairly boring businesses, but they are highly reliable. Dividend investors interested in energy stocks will particularly appreciate them, given Enterprise’s 5.8% distribution yield and Enbridge’s dividend 5.2% yield.
Enterprise Products Partners
Today’s Change
(0.89%) $0.33
Current Price
$37.32
Key Data Points
Market Cap
$80B
Day’s Range
$36.79 – $37.41
52wk Range
$27.77 – $38.22
Volume
3.4M
Avg Vol
4.5M
Gross Margin
12.86%
Dividend Yield
5.88%
Which one should you buy?
That said, they aren’t interchangeable. Enterprise is a master limited partnership (MLP), which means it comes with material tax complications. Enbridge, meanwhile, isn’t a pure play midstream business. It also owns regulated natural gas utilities and has a small clean energy business. That diversification may be attractive to some investors, while turning others off.
Today’s Change
(0.85%) $0.46
Current Price
$54.54
Key Data Points
Market Cap
$118B
Day’s Range
$53.82 – $54.59
52wk Range
$39.73 – $54.59
Volume
245K
Avg Vol
4.9M
Gross Margin
32.74%
Dividend Yield
5.06%
Still, the bigger takeaway is that you can invest in the energy sector without taking on the excessive commodity exposure you would if you bought an oil driller. Reliable income stocks like Enterprise and Enbridge may look boring right now, when oil prices are flying high, but history shows that oil prices will eventually fall. When that happens, Enterprise and Enbridge will likely look very attractive again.
Buy Enterprise and/or Enbridge now, and you can collect an attractive income stream from the energy sector while you wait for Wall Street to be reminded (yet again) that what goes up also comes back down.
Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.