Natural gas infrastructure giant Kinder Morgan and oil pipeline MLP Plains All American Pipeline have spent the past several years shoring up their financial profiles. Both recently completed those efforts, which allowed them to start returning more cash to investors through big-time dividend increases. As a result of recent 20%-plus boosts, Plains All American now yields roughly 6% while Kinder Morgan's payout is up over 5%. Meanwhile, each has solid growth prospects to go with their increased financial flexibility. That sets them up to continue growing their high-yielding payouts in the coming years.

While both pipeline companies look attractive these days, most investors likely have room for only one in their portfolio. Here's how they stack up.

A scale weighing gold coins.

Image source: Getty Images.

Drilling down into their financial profiles

Kinder Morgan and Plains All American completed their balance sheet improvement plans over the last year. As a result, each has a solid financial profile:

Company

Credit Rating

Debt-to-Adjusted EBITDA

Dividend Payout Ratio

% of Cash Flow, Fee-Based or Regulated

Plains All American Pipeline (NYSE:PAA)

BBB-/Ba1

3.4 times

57%

87%

Kinder Morgan (NYSE:KMI)

BBB/Baa2/BBB-

4.6 times

46%

90%

Data source: Kinder Morgan and Plains All American Pipeline. EBITDA = earnings before interest, taxes, depreciation, and amortization. 

Plains All American currently has a much lower leverage ratio. And the company recently announced plans to push it down further into the 3.0 to 3.5 times range. That target level should enable the company to achieve its objective of having its credit rating upgraded into the mid-BBBs. That would put it on par with Kinder Morgan's current rating, which two of the three credit agencies recently upgraded.

Kinder Morgan, meanwhile, has a lower dividend payout ratio even though it recently boosted its dividend 25%. Because of that, and its higher credit rating, Kinder Morgan scores points here for having a slightly stronger financial profile.

Comparing their valuations

Kinder Morgan currently expects to generate $2.20 per share in cash flow this year. With shares recently trading at around $20 apiece, it implies that the stock sells for about nine times cash flow. That's dirt cheap for a pipeline stock.

Plains All American, meanwhile, anticipates pulling in $2.58 per unit of cash flow in 2019. The oil pipeline company's units currently sell for around $24 apiece. As such, the market values Plains All American at slightly more than nine times cash flow.

This battle is a dead heat since Kinder Morgan is only fractionally cheaper.

A look at their growth prospects

Kinder Morgan currently has $6.1 billion of high-return growth projects under construction. Those expansions position the company to grow cash flow by 7% this year and should support another healthy boost in 2020 due to the timing of when its projects will come online. Meanwhile, Kinder Morgan anticipates that it can secure $2 billion to $3 billion of new expansion projects per year, which at the low end should support mid-single-digit annual earnings growth. That's a solid pace for a company of Kinder Morgan's size.

Plains All American, meanwhile, expects cash flow per unit to grow by around 5% this year, supported in part by the $1.1 billion it plans to invest in expansion projects. Meanwhile, like Kinder Morgan, Plains All American anticipates continued growth over the next few years. It recently sanctioned a new long-haul oil pipeline that should start service in 2021. It also has a couple of other pipeline projects in development that could begin moving oil over the next couple of years. These expansions set up the company for mid-to-upper-single-digit earnings growth over the next few years.

These expansion plans should support continued dividend growth for both companies. Kinder Morgan, for example, anticipates boosting its payout by another 25% next year, though dividend growth will likely moderate considerably after 2020. Meanwhile, Plains All American believes that it can increase its distribution to investors by about 5% annually over the next couple of years, with the potential for a reacceleration after it achieves its lower leverage target.

This battle is very close. Both have solid near-term growth prospects supported by secured expansion projects. Plains All American, however, could grow at a faster pace due to its smaller size and focus on building oil-related infrastructure in the Permian Basin.

It's a very close call

Kinder Morgan and Plains All American have very similar financial profiles, valuations, and growth prospects. Because of that, they could generate comparable total returns over the next few years. However, for investors who want only one of them in their portfolio, I'd go with Kinder Morgan. The tiebreaker is the fact that Plains All American is an MLP, which not only comes with more paperwork at tax time but makes it ineligible for most retirement accounts.