Is Enbridge a Better Ultra-High-Yield Dividend Stock to Buy Right Now Than Energy Transfer?

Midstream energy stocks have been anything but middling performers recently. Just look at Enbridge (NYSE: ENB) and Energy Transfer LP (NYSE: ET). These two leading midstream stocks have soared 33% and 42%, respectively, over the last 12 months.

Just because one has been a bigger winner in the past doesn't necessarily mean it will remain on top, though. Is Enbridge a better ultra-high-yield dividend stock to buy right now than Energy Transfer? Here's how the two stocks compare.

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The underlying businesses

Enbridge's and Energy Transfer's business models are similar in several ways. They both have extensive pipeline networks in North America.

Probably the main differentiator with their midstream operations is that Enbridge's pipelines are in Canada and the U.S., while Energy Transfer's pipelines are only in the U.S. That's understandable since Enbridge is a Canadian company, whereas Energy Transfer is based in the U.S.

Another key difference between the two companies is that Enbridge is more diversified. Thanks to acquisitions completed in 2023, it now ranks as the largest North American natural gas utility company.

Perhaps the most important overall way these businesses differ is in size. Enbridge's market cap is around $99 billion. The company generated adjusted earnings of over 6 billion in Canadian dollars and distributable cash flow of almost CA$12 billion last year.

Energy Transfer's market cap of nearly $68 billion is significantly lower. So are the midstream operator's 2024 earnings of $1.08 billion and distributable cash flow of $1.98 billion.

Their growth prospects

Enbridge projects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between CA$19.4 billion and CA$20 billion in 2025. This reflects year-over-year growth of nearly 17% at the midpoint of the range.

Energy Transfer expects adjusted EBITDA between $16.1 billion and $16.5 billion this year. The midpoint of this guidance range reflects a year-over-year increase of around 5%.

Could potential tariffs on Canadian imports to the U.S. impact Enbridge's business? Perhaps, but I don't think the effects will be significant. Over the longer term, the growth prospects for these two companies should be similar because they face many of the same industry dynamics and opportunities.

Dividends

Both Enbridge and Energy Transfer offer especially juicy dividends/distributions. However, Enbridge's forward dividend yield of 6.05% is lower than Energy Transfer's forward distribution yield of 6.58%.

The tables are turned when we look at dividend/distribution track records, though. Enbridge has increased its dividend for an impressive 30 consecutive years. Energy Transfer slashed its distribution in 2020 as the company reeled from the impact of the pandemic but began growing its distribution again in 2022.

Valuation

Energy Transfer's valuation looks more attractive than Enbridge's no matter what metric we use. While Enbridge's shares trade at 21.5 times forward earnings, Energy Transfer's forward earnings multiple is only 10.7. There's an even greater gap between the two stocks based on price-to-sales ratios, with Energy Transfer trading at 0.82 times sales versus 2.87 for Enbridge.

The enterprise-value-to-EBITDA multiples for the two stocks are much closer, but Energy Transfer still comes out ahead with an EV-to-EBITDA ratio of 0.82 compared to 2.87 for Enbridge.

The better stock to buy?

I think both Enbridge and Energy Transfer are great picks for income investors. If I could pick only one, though, the nod would go to Energy Transfer. It offers a higher yield and a more appealing valuation.

However, investors who prefer a more stable business will probably find Enbridge better suited for their portfolios. Also, anyone seeking to avoid the tax hassles associated with investing in limited partnerships will likely want to go with Enbridge rather than Energy Transfer.

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Keith Speights has positions in Enbridge and Energy Transfer. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.