When it comes to securing a financially comfortable retirement, the right dividend stocks are crucial. They should stand the test of time, boasting a defensive and durable business model, a robust balance sheet, a safe and growing payout, and a high current yield. Both Enbridge (NYSE:ENB) and MPLX (NYSE:MPLX) pass this litmus test with flying colors, making them worthy candidates for inclusion in a well-diversified dividend stock portfolio aimed at delivering lifelong income. In this article, we will delve into a side-by-side comparison of these two companies and offer our insights on which is the best buy in the current market.

Business Models

Enbridge’s defensive and durable business model revolves around high-quality, well-located assets that are predominantly long-term contracted or regulated, with 98% of its EBITDA derived from long-term, take-or-pay contracts and regulated utility assets. This structure ensures the generation of stable cash flows irrespective of market conditions.

At the heart of Enbridge’s business lies its Mainline pipeline system, a critical piece of infrastructure that facilitates Canadian oil exports to U.S. markets, servicing over 70% of Canada’s export capacity and catering to U.S. refineries with a steady demand for heavy oil.

The recent strategic acquisition of natural gas utilities from Dominion Energy (D) further underscores Enbridge’s commitment to diversifying revenue streams and fortifying its footprint in the natural gas space, thereby enhancing the stability of its cash flows. Presently, Enbridge’s business mix post-acquisition is divided among liquids pipelines (50%), gas transmission (25%), gas distribution (22%), and renewables (3%). Looking ahead, the company’s growth trajectory is underpinned by a diversified portfolio encompassing midstream, utilities, and renewable power production segments, providing ample opportunities for long-term growth.

Meanwhile, MPLX primarily focuses on its Logistics and Storage (L&S) and Gathering and Processing (G&P) segments, servicing natural gas, NGLs, and crude oil. An important aspect of MPLX’s business model is its symbiotic relationship with Marathon Petroleum Corporation (MPC), offering growth opportunities and steady demand from a high-quality counterparty. However, there is also the risk of MPC prioritizing its own interests over those of MPLX’s unitholders. Nevertheless, MPLX’s diversified asset portfolio, underpinned by fee-based contracts guaranteeing a steady income stream, coupled with strategic decisions to high-grade investments, positions it well for future growth potential.

Balance Sheets

Enbridge boasts one of the best credit ratings in the midstream sector, with a BBB+ rating from all credit rating agencies. Its balance sheet is marked by well-laddered debt maturities, mostly fixed-rate debt, and significant liquidity. With a debt ratio at the lower end of its 4.5-5.0x range, the company’s financial position aligns well with its cash flow stability and portfolio diversity.

MPLX also maintains a strong balance sheet, evidenced by its BBB credit rating from S&P and improved leverage ratio from 3.7x in 2019 to 3.4x in Q3 2023. The company has consistently strengthened its financial position while remaining generous with capital returns to unitholders. Its well-laddered debt maturities and significant free cash flow generation, combined with balance sheet liquidity, provide ample financial flexibility for future endeavors.

Dividend/Distribution Outlooks

Both ENB and MPLX have safe and growing dividend/distribution payouts. ENB leads the industry with its 27-year dividend growth streak, projecting a 4.5% DCF per share CAGR and 3.1% dividend per share CAGR forecast through 2027. With a 65.7% expected payout ratio in 2023 and a robust balance sheet, ENB’s dividend appears secure and offers room for continued growth for years to come, according to analysts.

MPLX, on the other hand, maintains an 11-year distribution growth streak and also presents a solid case for future growth, with a 67% expected DCF payout ratio in 2023 and a resilient balance sheet, ensuring flexibility for increasing its distribution in the foreseeable future.

Comparing Growth Approaches

Market experts are buzzing with enthusiasm about MPLX’s future, foreseeing a robust 6.0% distribution per unit CAGR by 2027. However, the company’s projected DCF per unit growth lags behind at a 2.8% CAGR over the same period. The difference between ENB’s and MPLX’s capital allocation strategies is reflected in their projected DCF and dividend growth rates.

ENB Stock & MPLX Stock: A Valuation Duel

The valuations of the two companies show a clear contrast. While MPLX appears significantly more affordable than ENB based on head-to-head comparisons across the EV/EBITDA, P/DCF, and Dividend Yield metrics, ENB’s current trade comes at a substantial discount when compared to its own historical averages. The NTM EV/EBITDA and Dividend Yield metrics for both companies further highlight this disparity.

The rationale behind the premium on ENB’s historical trade relative to MPLX’s valuation unfolds through a combination of its superior credit rating, longer dividend growth track record, and higher-rated asset portfolio. ENB’s prime appeal stems from its ownership of a substantial number of regulated assets, which generally command premiums compared to the midstream assets prevalent in MPLX’s portfolio.

Investor Takeaway: A Tale of Two Stocks

ENB and MPLX both exhibit characteristics of a quality dividend stock, ideal for securing passive income in retirement due to their resilient business models, stable balance sheets, secure and growing payouts, as well as high current yields. Nevertheless, despite MPLX’s assets trading in line with historical averages, it is viewed as a ‘Hold’ at present, given the persistently elevated interest rates. Meanwhile, ENB is positioned as a ‘Buy’ due to its deviation from historical average valuations and the improved profiles in defense and growth following a recent acquisition in the natural gas utilities sector.