Enterprise Products Partners (NYSE:EPD) and Magellan Midstream Partners (NYSE:MMP) have been fantastic income stocks over the years. These large-scale master limited partnerships (MLPs) both have a long history of increasing their distributions quarterly. Enterprise Products, for example, has raised its payout for 21 straight years, including in each of the last 62 consecutive quarters. Magellan Midstream, on the other hand, has boosted its payout 71 times since its initial public offering in 2001.

Both MLPs expect to keep growing their payouts for the foreseeable future, which makes either one an attractive option for dividend seekers. However, since most investors likely only want to own one energy company in their portfolios, here's a look at which of these two MLPs is the better buy right now.

Drilling down into their financial profiles

The most important step an investor can take when considering two dividend-paying options is to analyze the sustainability of those payouts by taking a close look at their financial situations. Here's how these two MLPs stack up against each other:

Company

Dividend Yield

Credit Rating

Percentage of cash flow fee-based or regulated

Dividend Payout Ratio

Debt-to-Adjusted EBITDA

Enterprise Products Partners

6.9%

Baa1/BBB+

86%

59%

3.5 times

Magellan Midstream Partners

6.8%

Baa1/BBB+

85%+

80%

2.8 times

Data source: Enterprise Products Partners and Magellan Midstream Partners. EBITDA = earnings before interest, taxes, depreciation, and amortization.

As that table shows, the two MLPs have remarkably similar financial profiles. They tie for having the highest credit rating in the MLP space. They back that up with similarly predictable cash flow profiles, conservative dividend payout ratios, and low leverage levels. Magellan's leverage ratio is well below its long-term target of less than four times debt-to-EBITDA, while Enterprise is in the midpoint of its three to four times target range.  

Thanks to those strong financial profiles, both of their high-yielding payouts are on rock-solid ground.

Several pipelines with the sun shining brightly.

Image source: Getty Images.

A look at their growth profiles

Another important factor to consider when determining the sustainability of dividend growth is to look at the visibility of a company's growth profile. In Magellan's case, it currently expects to invest about $400 million into expanding its midstream network this year. That's well below the $990 million it spent last year, as well as its annual average in recent years, which has been closer to $700 million.

While the company has more than $500 million of potential growth projects in development, including a new oil export terminal in Texas, the MLP believes it has entered a period of lower expansion-related capital spending. Because of that, it has slowed its distribution growth rate to 3% this year, which is down from 5% in 2019.

Enterprise Products Partners, meanwhile, has a large slate of expansion projects under construction. The MLP entered the year with $7.7 billion of commercially secured expansions, which should come online through 2023. On top of that, it has a competing oil export project in development that's much further along than the one Magellan might join. That larger backlog provides investors with greater visibility into Enterprise's ability to keep increasing its payout.

A quick peek at their valuations

Investors have soured on the MLP sector in recent years due to the chronic underperformance of energy stocks. Because of that, both MLPs currently trade at historically low valuations. While MLPs have traditionally traded at a mid-teens multiple of their cash flow, Magellan Midstream sells for about 11 times its cash flow, while Enterprise Products trades at around 8.5 times its cash flow. 

Because the market has undervalued these companies, both have authorized unit repurchase programs. Magellan could buy back up to $750 million of its units, which is about 5.5% of its outstanding units. Enterprise, meanwhile, authorized a $2 billion stock repurchase program, which is enough to retire about 3.5% of its outstanding units.

Enterprise has already started buying back some units and plans to allocate about 2% of its 2020 cash flow to repurchase undervalued units. Magellan, meanwhile, might opt to pay special dividends instead of repurchasing units, since its valuation isn't quite as low as others in the sector.

Verdict: Enterprise Products Partners is the better buy right now

While both MLPs have similarly strong financial profiles, Enterprise stands out as the better buy right now, given its stronger growth prospects and cheaper valuation. Those factors could enable the company to generate higher total returns in the coming years.