The midstream oil and natural gas industry has fallen deeply out of favor, with the Alerian MLP ETF down 50% from its 2014 highs. So it shouldn't be much of a surprise to find that the stocks of midstream players Buckeye Partners, L.P. (BPL) and Enbridge, Inc. (ENB -0.49%) have also fallen steeply. Buckeye and Enbridge, however, both have impressively long records of rewarding investors with annual dividend increases.

Since dividend yields go up as stock prices fall, is now a good time to buy one of these high-yield midstream companies?

Some enticing dividend numbers

Investors looking to the midstream sector are often in search of income. That makes sense given the industry's penchant for using fee-based assets to pay out a large amount of their income as dividends and distributions, in the case of limited partnerships. And neither Buckeye nor Enbridge has let income investors down -- both have increased their disbursements annually for 22 consecutive years.

A man turning valves on a natural gas pipeline

Image source: Getty Images

Their yields, meanwhile, are extremely enticing today. Enbridge's dividend yield is up to 6.8%, more than three times what you would get from an S&P 500 index fund. It's also the highest it's been in over 20 years. Buckeye's distribution yield is over 12%, six times what you could get from the broader market. Its yield is higher than it has been in roughly 30 years.

Part of the reason for the high yields is the negative investor sentiment around midstream companies today. But that's not the only issue here: Both Buckeye and Enbridge made large acquisitions in 2017. Larger Enbridge bought Spectra Energy for $28 billion. Relatively small Buckeye paid roughly $1.2 billion for a 50% interest in VTTI.

Where do the dividends go from here

The problem with these transactions is that they required Enbridge and Buckeye to issue new stock and units, respectively. That pushed the distribution coverage of each below one in 2017. Weak disbursement coverage is one of the main reasons why investors have been so negative on these midstream participants.

Bar charts showing Buckeye's distribution coverage falling below one in the past while it grew adjusted EBITDA, continued to increase the disbursement, and lowered leverage levels

Buckeye has been willing to let distribution coverage fall below one while it invests for the long term. Image source: Buckeye Partners, L.P.

Buckeye's coverage dipped below that key number in the third quarter. Although it managed to hit a one for the entire year on a stronger coverage ratio in the fourth quarter, it also stopped increasing its distribution each quarter after the coverage dip in the third quarter. That's another warning sign for investors that the distribution could be at risk, though management has been very clear that it doesn't have any intention of cutting. And it's important to note that the partnership has gone through periods like this before, with long-term investments pushing near-term results lower before finally bearing fruit and pushing coverage back above one.

If history is any guide, Buckeye's high yield could well be worth the effort of tracking its turnaround story, especially for more aggressive investors. That's particularly true since the fourth quarter showed that the VTTI deal is already starting to boost financial results. However, for more conservative investors Enbridge is probably the better bet.

A listing of the $10 billion worth of projects Enbridge completed in 2017

Enbridge was busy building in 2017. Image source: Enbridge, Inc.

Enbridge's coverage was below one for the entire year in 2017, but there's a big difference here. It not only increased its dividend in 2017, but continues to project robust dividend growth into the future. At this point it expects to grow the dividend by 10% a year through at least 2020. Supporting that are roughly $10 billion worth of projects brought into service in 2017, and around $18 billion in spending planned through 2020.

What kind of investor are you?

If you can handle a turnaround situation, then Buckeye's high yield should be pretty enticing. It will require a lot of monitoring, but that 12% yield will reward you for the effort. That said, the path forward for Enbridge is far more clear, driven by material spending plans and successful execution in 2017. The yield offered by Enbridge is lower, but for more conservative investors it will be easier to sleep at night if you pick Enbridge over Buckeye.