Dividend investors don't like risk. Instead, they focus on companies that can continue to pay them well, in good years and bad, for years into the future. That's exactly what you'll find with Enterprise Products Partners (EPD 0.21%) and Kinder Morgan (KMI -0.41%). Here's a quick look at why these energy industry players are so reliable and attractive today.

Happily stuck in the middle

The key to the story here is that Enterprise and Kinder Morgan both operate in the midstream sector of the broader energy industry. The upstream energy portion is all about producing oil and natural gas. The downstream part processes these fuels. The midstream arena helps to move energy for the two, largely charging fees for using pipelines, storage, processing, and transportation assets. This is vital infrastructure that will be needed so long as the world continues to use oil and natural gas and the products into which they are turned. 

A hand planting money in the ground to show long term investing growth.

Image source: Getty Images.

It is the fee structure that's so important here because it means that Enterprise and Kinder Morgan's top and bottom lines aren't dependent on commodity prices. Demand is the big issue and it's still robust. That makes their businesses fairly consistent over time. And, thus, provides a solid foundation for payouts.

Safe, attractive yields

Today, the S&P 500 index ETF offers a miserly 1.5% yield. Vanguard Energy Index ETF has a 3.1% yield. Enterprise's distribution yield is a huge 7.9% while Kinder Morgan's dividend yield is still a highly desirable 6.1%. Midstream stocks are generally run in a way that emphasizes distributions, which is exactly what dividend investors are looking for. 

Notably, though, the income streams here are very well covered. Enterprise, a master limited partnership (MLP), was able to cover its distribution 1.8 times over with distributable cash in the third quarter of 2022. Kinder Morgan's distributable cash flow also covered its distribution by a similar, though slightly lower, amount in the third quarter. The big takeaway is that such coverage levels provide material room for adversity before either of these distributions would be at risk. 

Some caveats

There are two things that investors need to understand before investing here. For example, the MLP structure is a bit more complicated come tax time. And MLPs don't play well with tax-advantaged retirement accounts. So investors looking at Enterprise should probably consider talking to a tax specialist before buying it. 

Kinder Morgan, meanwhile, will likely turn off some dividend investors because it cut its dividend in 2016 (the dividend has since gotten back on the growth path). While it is generally considered a well-run midstream company, management was talking about a dividend increase in 2016 just a short while before turning around and cutting the payment. Conservative investors will probably, and justifiably, have trust issues here. Enterprise's impressive string of 24 consecutive distribution hikes will probably be preferable.

The future?

The last notable issue is that Enterprise and Kinder Morgan own large physical assets that throw off reliable cash flows. While contracts generally allow for small annual fee increases, to really grow they both need to build or buy new assets. Right now Enterprise has $5.5 billion of capital investment projects in the works. Kinder Morgan's backlog of work is around $2.7 billion. In other words, these North American midstream giants are still expanding their footprints. And that suggests that there's some upside to their quarterly payments.

Boring and reliable

At the end of the day, these two energy players operate in the most mundane niche of the industry. That supports their big yields and, based on the fee-based nature of their businesses, helps to insulate them from the commodity volatility that dominates the broader sector. If you are looking for a reliable income stream, Enterprise is probably the best fit for conservative investors. For those who don't want an MLP and that can overlook the 2016 dividend cut, Kinder Morgan is a strong alternative.