Better Buy: Kinder Morgan, Enterprise Products, or Linn Energy?

With Treasuries at all-time lows and concerns over the stock market's recovery, savvy investors have had to look elsewhere to find solid yields. Sure, big-name players like Altria and Verizon pay good dividends and have sustainable businesses, but after the financial panic of 2008 and the flash crash this past May, many people are just too fearful to get back in the game.

So I wanted to take a look at a specific investment -- master limited partnerships -- that typically pays a great dividend and has a history of terrific performance.

In particular, let's look at Kinder Morgan Energy (NYSE: KMP  ) , Enterprise Products (NYSE: EPD  ) , and Linn Energy (Nasdaq: LINE  ) and try to see which is the better buy at today's price.

Latest news
On July 21, Kinder Morgan surprised almost nobody by reporting yet another great quarter -- higher earnings on even higher revenues. Even better, the company announced that it was raising its cash distributions to shareholders by 4% to a total of $1.09 per unit. This is the 13th consecutive dividend increase by Kinder Morgan. Back in May, Kinder also announced that it would be buying a 50% stake in Petrohawk Energy's (NYSE: HK  ) natural gas play in the Haynesville shale. The JV should be able to have about 2 billion cubic feet per day of capacity.

Enterprise Products, which reported earnings last week, also had some good news: Gross margins increased by 31%, and net income rose by 75%. It also was able to boost its quarterly distribution by 5.5%, the 11th consecutive time it's been able to raise cash payouts to shareholders.

Linn Energy is actually an LLC, although it has similar tax advantages to that of an MLP, and as opposed to being a natural gas transporter, it actually explores and develops oil and gas. The company announced second-quarter production about 7% higher than its midpoint expected range, which was a result of operational efficiency in all segments. Linn is continually expanding, as it has announced about $1 billion year-to-date on acquisitions that will help it expand its reserves.

Advantage: Enterprise Products

Balance sheet
Linn Energy definitely leads the pack here with a total debt-to-equity ratio of only 48%, while both Kinder and Enterprise have ratios above 100%. Linn has also been able to increase revenues by 84% over the past half-decade, while only Enterprise has been able to also increase sales over the same time period, but at a much slower 25%. Additionally, Linn has the highest current ratio of the bunch, illustrating that it is best equipped to meet its short-term obligations.

Advantage: Linn Energy

Valuation
Looking at the three companies from a strict forward price-to-earnings basis, Enterprise Products seems to be the cheapest, with a multiple of 18.3. However, two of Enterprise's competitors, Spectra Energy (NYSE: SE  ) and Duke Energy (NYSE: DUK  ) , are sporting multiples below 13, materially cheaper than Enterprise.

Advantage: Enterprise Products

The Foolish conclusion
While neither company is expecting to reach mind-boggling growth, analysts still see Enterprise expanding at a faster clip than Kinder Morgan. While it's hard to ever count Kinder Morgan out of the game because of its past success and darling-status among the MLPs, it seems as though at today's prices, Enterprise is the better buy.

Fool contributor Jordan DiPietro owns no shares mentioned above. Duke Energy, Enterprise Products Partners LP, and Spectra Energy are Motley Fool Income Investor choices. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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