American energy production is booming. In fact, the United States is now a net exporter of natural gas, on pace to become a net exporter of energy by 2022, and could become a net oil exporter in the mid-2030s. While that might elevate the importance of energy pipeline owners and companies, that group has generally not performed very well in recent years, with many of the laggards only now beginning to hit their much-discussed deleveraging targets.

Investors can count Kinder Morgan (NYSE:KMI) and Williams Partners LP (NYSE:WPZ) among the bottom feeders in the pipeline industry. That's to be expected with five-year total returns of -46% and 29%, respectively. For comparison, the S&P 500 delivered returns of 86% in that timespan with dividends included.

That said, both companies have ambitious plans to grow their businesses and distributions in the coming years, and are cleaning up their balance sheets. Is one better positioned for success than the other? Which pipeline stock would be the better buy?

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The matchup

Kinder Morgan stock's wild ride in recent years has made it a polarizing energy stock. The biggest criticism is that the company has simply not lived up to the ambitious promises it's made to shareholders since going public. The stock has lost 29% of its value since its IPO in 2011 -- and that's with dividends included.

Perhaps unsurprisingly, the biggest reason for optimism going forward is the growth strategy. Assuming management can deliver this time around, investors would be looking at dividend increases of 36% per year through 2020. In 2018 alone Kinder Morgan expects to generate $7.5 billion in earnings and $4.6 billion in free cash flow. After investing half of that in growth projects and distributing $1.8 billion to shareholders, it'll have about $500 million leftover for anything it wants.

Will the company deliver? Well, Kinder Morgan's plans may have just changed following the $3.5 billion sale of its Trans Mountain Pipeline expansion project to the Canadian government -- some analysts think for the better. While the expansion represented $5.7 billion of the company's projected $10.3 billion increase in annual adjusted EBITDA from growth projects in the pipeline, the sale removes uncertainty and provides a whole lot of cash to plow into other investments. Those could be midstream assets or additional natural gas pipelines, which comprise the remaining growth projects in its backlog.

Pipelines under construction.

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Meanwhile, Williams Partners LP boasts a market valuation that's nearly identical to Kinder Morgan's, but focuses almost exclusively on shuttling natural gas in the Northwest, Northeast, and along the Gulf Coast. In fall 2018 the partnership will cease to exist and merge with its parent, The Williams Companies (NYSE:WMB), which owned a 74% stake in the pipeline operator at the end of March.

The decision to merge was triggered by tax considerations, but will provide benefits to shareholders as well. Most importantly, it will simplify the corporate structure of Williams Companies and make it easier to raise the capital needed to invest in promising growth projects.

That includes a healthy list of expansion projects aimed at transporting booming natural gas production from the Utica and Marcellus regions in the Northeast -- responsible for 41% of all shale gas production in the United States -- to industrial and export infrastructure along the Gulf Coast and homes and businesses throughout the Southeast. The company's Transco system, which stretches from New York to Texas, provides it with a massive advantage to capitalize on the Northeast's gas.

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In fact, Williams Partners has a portfolio of $20 billion in potential growth projects under consideration. Even before the merger was announced, it expected to be able to fund up to $3 billion per year with available capital. That could increase with a simplified operating structure, enabling more growth sooner. That may be needed if expected production increases are any guide.

The Northeast region is expected to increase natural gas production by 17.5 billion cubic feet per day (Bcf/d) between 2017 and 2022, supported by over 18 Bcf/d of planned pipeline capacity expansions. Only 3.5 Bcf/d of the new capacity is operational, hinting at the huge opportunity for energy infrastructure companies such as Williams Partners, which is the largest gatherer of natural gas in the region.

While the two companies have yet to reconcile their outlooks as a combined company, Williams Companies thinks it could grow adjusted EBITDA from $4.55 billion in 2018 to $5 billion in 2019. Distributable cash flow could increase 12% in that span to $3.1 billion, while dividend distributions could climb 10% to 15%. In other words, the companies expect to maximize the growth opportunities in front of them both in the near and long term.

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By the numbers

Both stocks have impressive growth potential in both the near and long term, a testament to their unique position in the value chain of North American energy flows. However, it pays to compare the two using various valuation metrics that are important to energy infrastructure companies. While investors might turn to dividends first, it's probably more important to consider debt: Many pipeline operators are in a constant struggle to manage their leverage ratios, which affect their financial flexibility.

Here's how the two compare head-to-head by the numbers:   

Metric

Kinder Morgan

Williams Partners

Market cap

$38.7 billion

$39.7 billion

Dividend yield

4.4%

5.9%

Forward PE

18.1

20.0

PEG ratio

1.29

0.97

EV/EBITDA

13.4

15.3

Net debt / adjusted EBITDA

5.1

3.63 (Williams Partners LP), 5.0 (consolidated)

Source: Yahoo! Finance, company presentations.

Williams Partners trades at a slight premium to future earnings projections and enterprise value but offers a much higher dividend than Kinder Morgan, and sports a PEG ratio that suggests it will grow faster than average investments. The head-to-head matchup here suggests analysts and investors are more confident in the former's growth strategy along the Transco than the latter's less-than-concrete growth plans.

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The better buy is...

While both companies are promising impressive growth to shareholders, I think investors should take into account the fact that Kinder Morgan simply hasn't been very good at creating shareholder value in its life as a public company. There's not much of an argument to be made that it can support a total return of negative 29% in over seven years.

That helps to make Williams Partners the better buy in this matchup, as does its virtually slam dunk growth courtesy of the awesome natural gas production slated to occur in Marcellus and Utica shale in the next five years. However, the proposed merger with Williams Companies does complicate the calculus a bit for investors, so it may be better to await more concrete details about the combined company.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.