Same yield, but no comparison on value: Chevron versus Kinder Morgan

Investors must make trade-offs every time they buy a stock. There is a balance between the risk and return of the specific investment they choose to hold. But there is also an opportunity cost, because buying one stock usually means not buying another, perhaps similar, one. This is where a comparison of Children Morgane (NYSE:KMI) And Chevron (NYSE: CVX) arrives today, with both of these dividend stocks currently offering yields of around 4%.

Kinder Morgan operates in the midstream segment of the broader energy sector. This means it has vital energy infrastructure like pipelinesstorage and transport. It focuses on North America, where the majority of its revenue comes from fees it charges other companies for the use of its assets. The midstream sector is probably the most consistent cash flow generator within the energy sector.

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Essentially, Kinder Morgan is a toll taker. Demand for oil and gas, and other products transported through its system, is more important to its financial results than the price of oil and gas. Energy demand tends to remain high even when prices are low, because oil and natural gas are essential to economic activity.

Chevron is a very different entity. As an integrated energy giant, Chevron operates in the upstream (oil and gas production), midstream (pipelines) and downstream (chemicals and refining). Each of these segments behaves a little differently throughout the economic cycle. As noted, the midstream sector is a fairly stable segment, in terms of performance, while the upstream and downstream sectors are both quite volatile and commodity-driven. That said, the upstream and downstream sectors often diverge, as oil and natural gas are key inputs in the chemical and refining sectors.

Thus, broad exposure to the energy sector tends to smooth out the ups and downs of this volatile energy sector over time. On top of that, Chevron has a history of being fiscally conservative when it comes to its balance sheet, allowing it to take on debt during oil downturns so it can continue to fund its business and support its dividends. . Overall, Chevron is one of the most conservative ways to gain exposure to the energy sector if you want to own a company that produces oil and natural gas.

The intermediate sector is generally recognized as a good fishing basin for high-yielding stocks. To that end, Kinder Morgan's dividend yield is currently just over 4%. This compares favorably to S&P500 the index, which yields just 1.2%, and the average energy stock yields 3.3%. But some of Kinder Morgan's closest peers have yields of 6% or more.

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But this is where things get interesting. Chevron's dividend yield is also currently around 4%. To be honest, this is a very different business as stated. However, Chevron has increased its dividend every year for 37 consecutive years despite the increased volatility inherent in its business model. Kinder Morgan cut its dividend in 2016. Notably, Kinder Morgan's dividend cut came after it told investors to expect a dividend increase of up to 10%! Kinder Morgan went back on its word again in 2020, when it imposed a 5% dividend increase instead of the 25% previously promised.

What happened in 2016 and 2020? The energy sector faced headwinds. So, just when investors were likely counting on Kinder Morgan to support its dividend, that's not the case. Chevron, despite its significant exposure to energy price volatility, has not skimped on its dividend during these difficult times. It is, ultimately, the most reliable dividend stock.

Given that Chevron and Kinder Morgan have very similar returns today, it's difficult to suggest that Kinder Morgan is the better energy investment for income-oriented investors. This is especially true given the very different paths their dividends take. If you're looking for a high-yield energy investment, the risk/reward balance here seems to favor Chevron. Or if you're leaning toward Kinder Morgan, at least consider some of its higher yielding peers, like Enterprise Product Partners And Enbridgeboth of which have better track records when it comes to the income streams they offer investors.

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Ruben Gregg Brewer holds positions at Enbridge. The Motley Fool holds positions and recommends Chevron, Enbridge and Kinder Morgan. The Motley Fool recommends Enterprise Products Partners. The Mad Motley has a disclosure policy.

Same yield, but no comparison on value: Chevron versus Kinder Morgan was originally published by The Motley Fool