Even though investors hoping to grow wealthy often put a lot of effort into hunting for "the next big idea," the road to riches is usually more boring. If you invest consistently in high-quality stocks and build a diversified portfolio over time, you are likely to amass more wealth than you would by frequently moving in and out of hot but risky companies.
What's more, you don't need much money to start investing in just those types of high-quality stocks. If you have just $100 to invest right now, you could buy one share each of three excellent energy sector players: Kinder Morgan (KMI +0.74%), Enbridge (ENB +0.23%), and Williams Companies (WMB +0.41%).
Steady earnings
As midstream operators, Kinder Morgan, Enbridge, and Williams Companies are not as directly exposed to commodity prices as oil and gas producers are. The fees they charge don't change when the prices of fossil fuels rise or fall, so their earnings are relatively stable.
KMI EBITDA (TTM) data by YCharts
For Enbridge and Williams Companies, EBITDA (earnings before interest, tax, depreciation, and amortization) has been on a generally upward trend over the past five years.
Strategically located assets and fee-based contracts contributed to Williams Companies' steady earnings growth. Further, it expects its EBITDA to grow by 7% in 2022.
By comparison, Kinder Morgan managed to keep its EBITDA relatively stable even when the company sold off non-core assets to strengthen its balance sheet.
For several years, Kinder Morgan has been funding its capital expenditures and dividend payments from the cash it generates from operations. That has contributed to a steady decline in its debt-to-EBITDA ratio.
KMI Financial Debt to EBITDA (TTM) data by YCharts
In fact, the debt-to-EBITDA ratio of all of these companies shows a downward trend. The ratio broadly reflects how much capacity a company has to pay down its debts, and, all other things being equal, a lower number is better.
Enbridge's Mainline system
Enbridge, which derives nearly 60% of its earnings from liquids pipelines, is in the process of negotiating a new tolling framework for its key Liquids Mainline pipeline.
Image source: Enbridge.
Enbridge management expects to have clarity on the new tolling framework by 2023. In the meantime, transport volumes on the pipeline have remained robust after its previous 10-year toll settlement expired in June 2021. The company expects volumes on the pipeline to average roughly 2.95 million barrels per day in 2022, well above their 2021 volumes.
The Canada Energy Regulator will have to approve the framework before it is implemented. Once approved, the framework will provide long-term visibility regarding Enbridge's earnings. These types of long-term rate settlements have allowed Enbridge to grow its dividend annually for 27 straight years.
NYSE: KMI
Key Data Points
Top energy stocks
Even as oil prices remain volatile, Kinder Morgan, Enbridge, and Williams Companies offer attractive and steadily growing income streams to their shareholders. At current share prices, their dividend yields range from 4.8% to 6.2%.
Steady fee-based cash flows, improved balance sheets, strategically located assets, and attractive yields make these my top energy stocks to buy with $100 right now.
