Pipeline giants Kinder Morgan (NYSE:KMI) and ONEOK (NYSE:OKE) have been pummeled this year due to all the turbulence in the oil market. Kinder Morgan's stock has tumbled more than 25%, while shares of ONEOK plunged more than 50%. These sell-offs have pushed up their dividend yields to 6.8% for Kinder Morgan and 10.3% at ONEOK.

Those big-time payouts likely have dividend investors wondering which of the two is the better buy. Here's how they compare.

Drilling down into their financial profiles

The most important factor to consider when analyzing two companies for their dividend is the sustainability of those payouts. The best way to do that is to take a close look at their financial foundations. Here's how these two pipeline giants stack up against each other.

Company

Credit Rating

% of Cash Flow Fee Based or Regulated

Dividend Payout Ratio

Debt to Adjusted EBITDA

Kinder Morgan

BBB/Baa2

92%

52%

4.6 times

ONEOK

BBB/Baa3

90%

74%

4.86 times

Data source: Kinder Morgan and ONEOK.

As that table shows, Kinder Morgan and ONEOK have similar credit ratings, and both get about 90% of their cash flow from predictable fee-based contracts. Kinder Morgan, meanwhile, has lower dividend payout and leverage ratios.

ONEOK's higher leverage is a bit of a concern, and it's one of the reasons its stock has tumbled 50% this year. It's well above the company's target of less than 4.0 times debt to EBITDA, which it had hoped to achieve by the end of this year as its expansion projects came online. However, given all the volatility in commodity prices, the company has pushed out that timeline. Further, it still has a lot of capital projects underway, which means leverage will likely keep rising in the near term, especially given its higher dividend payout ratio. If market conditions continue deteriorating, ONEOK might need to reduce its dividend and use some of the cash to pay off debt.

On the other hand, Kinder Morgan's leverage ratio is right around its 4.5-times target. Further, it's able to generate enough cash after paying its dividend to completely cover its capital expenses. As a result, its dividend is on rock-solid ground.

Two pipelines running parallel to each other over water.

Image source: Getty Images.

A look at what the future holds for these pipeline giants

ONEOK initially expected 2020 to be a big year. Thanks to recently completed expansion projects, it anticipated that its EBITDA would surge 25% as volumes filled those new assets. Meanwhile, with several more projects under construction, it predicted that its earnings could grow another 20% next year as volumes kept increasing.

However, many of ONEOK's customers needed to reduce their drilling activities and production this year as a result of cratering oil prices. Because of that, ONEOK no longer expects the surge in volumes to materialize. As a result, it revised its EBITDA forecast and now only expects a 9% increase. Meanwhile, it withdrew its outlook for 2021. Commodity prices would need to rebound significantly in the future for ONEOK's customers to restart their growth engines.

Kinder Morgan also revised its guidance for this year. It initially anticipated a small increase in earnings, as recent asset sales would offset most of its expansion-related growth. However, it now expects an 8% decline in EBITDA. On the other hand, with several projects on track to come online next year, most backed by take-or-pay contracts, its earnings should start growing again in 2021.

Verdict: Kinder Morgan is the better buy

ONEOK has a lot of upside if commodity prices improve because it has more exposure to volume fluctuations. However, those volumes cut both ways, as its earnings are under more pressure than Kinder Morgan's, given the current downturn in the oil market. That's a concern because of its higher leverage and dividend payout ratios. With ONEOK's dividend on shaky ground, Kinder Morgan's stock stands out as the better buy right now for income-focused investors.