Better Buy: Enbridge vs. Williams Companies

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Enbridge (NYSE: ENB) and Williams Companies (NYSE: WMB) are both attractive options for income-seeking investors. Each boasts a yield of more than 5% that they back with a strong financial profile. Because of that, either one could easily suit the needs of many dividend-focused investors.

Most investors, however, probably want to own only one of these high-yielding pipeline companies in their portfolio. That leaves them with a tough choice, since they match up exceptionally well.

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Drilling down into the numbers

When analyzing any investment, the first thing investors should do is take a close look at a company's financial profile. Here's how these two pipeline giants compare:

As the table shows, these two pipeline companies offer remarkably similar financial profiles. Both have an investment-grade credit rating backed by a solid financial profile. That's the result of a lot of hard work over the past few years, as each has completed a string of moves to bolster their balance sheets, including acquiring their MLPs, selling noncore assets, and investing in high-return expansion opportunities. Because of that, both companies now pay rock-solid, high-yielding dividends.

A quick look at their valuations

Investors are finally starting to give these pipeline companies some credit for all their hard work over the past few years. That's evident in their stock prices, which are both up more than 20% this year.

However, despite higher share prices, these pipeline companies still trade at relatively cheap valuations. Enbridge, for example, expects to haul in $3.32 per share of cash flow this year at the midpoint of its guidance range. With its stock currently selling for around $37.50 apiece, the Canadian pipeline giant trades at about 11.3 times cash flow. That's a bit low for such a strong company, since it should fetch a midteens multiple of cash flow.

Williams Companies, meanwhile, is on track to produce $2.55 per share in cash flow this year at the midpoint of its forecast. With its stock currently selling for around $28 per share, the natural gas pipeline giant trades at about 11 times cash flow. Again, that suggests this financially strong company is a bit undervalued.

A look at their growth prospects

Enbridge is in the middle of a three-year expansion program that will see the company grow its cash flow and dividend at a 10% annual rate through 2020. The Canadian pipeline company then expects its cash flow per share to expand at a 5% to 7% yearly rate, which it can self-fund with retained cash flow after paying the dividend.

Williams Companies, meanwhile, sees its cash flow rising by about 8% in 2019. That incremental cash flow, along with plans to increase its payout ratio, should support a 10% to 15% dividend growth rate this year. Post-2019, Williams believes it can also grow its cash flow at a 5% to 7% annual rate, which could support similar yearly increases in its dividend.

Again, these pipeline giants match up exceptionally well.

Verdict: It's a toss-up

Enbridge and Williams Companies offer investors remarkably similar profiles. Each pays a well-supported high-yield dividend, trades at an attractive valuation, and boasts a nearly identical growth profile. The only difference between them is that Williams focuses solely on natural gas infrastructure in the U.S. while Enbridge is more diversified, since it has gas pipelines in both counties, is the largest oil pipeline owner in North America, and operates some utilities in Canada. Some investors might favor Enbridge's greater diversification. Otherwise, either company should deliver above-average total returns in the coming years, making them both solid income stocks to buy right now.

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Matthew DiLallo owns shares of Enbridge. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool has a disclosure policy.