Kinder Morgan's (KMI -0.84%) generous 6.4% dividend yield will likely attract a lot of attention from investors. But the history here is important. Before you consider buying this North American midstream giant, let's look back at just how good (or bad) the last decade has been for its shareholders.

How much?

If you had invested $10,000 in Kinder Morgan 10 years ago, those shares would be worth roughly $4,750 today. Ouch. But that's not the full picture because Kinder Morgan is really an income stock, given that its hefty dividend provides a big part of its total return. And if you had reinvested those dividends, that $10,000 investment a decade ago would have jumped in value to ... roughly $7,750. Still ouch.

In fairness, the midstream sector was hot in the first couple of years of this 10-year span. That resulted in elevated valuations for a lot of those companies, which own the energy infrastructure that moves oil, natural gas, and the products into which they get turned from place to place. So the starting point of this period is something of a problem for Kinder Morgan. Which is why it makes sense to compare its less-than-inspiring performance to that of a peer like fellow energy industry giant Enterprise Products Partners (EPD -0.14%).

KMI Chart

KMI data by YCharts.

Had you bought $10,000 worth of Enterprise Products Partners stock a decade ago, those shares would be worth around $9,200 today. That's a much better performance than Kinder Morgan provided. However, it is directionally similar. Starting from a point of investor enthusiasm resulted in share price performance that wasn't very rewarding. Any value investor could have predicted that outcome.

Total return is where things really diverge. Had you reinvested the distributions you received from master limited partnership (MLP) Enterprise over the past decade, a $10,000 investment would have increased in value to $17,400 -- more than twice the value of an equal investment in Kinder Morgan. But there's a bit more to this story than meets the eye.

Bad choices and bad consequences

Kinder Morgan has always been a fairly aggressive player in the midstream sector. Part of that shows up in the company's historically elevated use of leverage, particularly relative to a more conservative peer like Enterprise. As the chart below shows, Kinder Morgan's debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio has been notably above Enterprise's over the entirety of the past decade. Today, Enterprise's ratio is roughly 3.2 times versus Kinder Morgan's 5.1.

EPD Financial Debt to EBITDA (TTM) Chart

EPD Financial Debt to EBITDA (TTM) data by YCharts.

Leverage isn't inherently bad, but when there's an industrywide downturn, carrying extra debt becomes a distinct disadvantage. That was on clear display in 2016 when Kinder Morgan cut its dividend. A host of factors led to that decision, including Kinder Morgan's leverage use and its propensity to make acquisitions. But the big picture doesn't change: Kinder Morgan took on more risk, and it ended up biting investors in the... end.

And here's where the compounding power of dividend reinvestment comes in. Basically, just when Kinder Morgan's stock was at a cheap point, its dividend got so low that buying more shares with the payouts didn't really provide a big benefit to investors. Or at least, not nearly as big a benefit as reinvesting Enterprise's steadily growing distribution. 

EPD Dividend Yield Chart

EPD Dividend Yield data by YCharts.

After Kinder Morgan's dividend cut, its yield fell into the low single digits while Enterprise's distribution yield was in the high single digits. That higher yield meant investors were buying more units at opportunistic prices. The end result, years down the line, was an even more robust total return.

Slow and steady

At the end of the day, the decisions made over the past decade at Kinder Morgan haven't worked out all that well for investors. That shows up in sharp relief when you compare it to one of its major peers. If you are a dividend investor looking at Kinder Morgan today, you might want to consider buying Enterprise and its even more generous 7.6% yield instead.