Passive income: 5.9% return from Williams companies or 7.0% from Enbridge


The Williams Companies (NYSE: WMB) and Enbridge (NYSE: ENB) are high-yielding, investment-grade midstream companies. WMB is cheaper on an EV/EBITDA basis, but ENB has a higher credit rating and higher dividend yield.

In this article, we will compare them side next and offer our take on which is a better buy.

WMB vs. ENB – Balance sheet

WMB (Baa2 from Moody’s with a stable outlook) and ENB (BBB+ from S&P with a stable outlook) have investment grade credit ratings, implying that they both have strong balance sheets.

That said, WMB investors need not worry either, with a solid leverage ratio of 3.82x and plenty of cash. In addition, management plans to continue deleveraging the balance sheet in the second half of the year, aiming to achieve a leverage ratio of 3.60x by the end of the year. This represents an impressive leverage ratio improvement of 1.2x since 2018.

While WMB’s balance sheet is certainly in good shape and the company is at little risk of financial difficulty, ENB’s slightly higher credit rating gives it a leg up. On top of that, with nearly all of its debt locked in at fixed interest rates and a substantial percentage of its debt not maturing until the 2030s, 2040s, 2050s, 2060s and even 2080s, the maturity of its debt is exceptionally well staggered. As a result, ENB has a fortress balance sheet that sets it up to invest opportunistically and even aggressively while facing few worries of financial distress.

WMB vs. ENB – Business model

WMB has high-quality midstream assets entirely focused on natural gas. Given the bright future for natural gas according to many analysts, this makes WMB a major midstream player for decades to come. Not only that, but it plays a vital role in the US energy industry by serving approximately one-third of all natural gas used in the United States.

In addition, since it serves 14 key supply areas with transmission pipelines located near densely populated regions, it benefits from significant and strategic geographic diversification.

Unlike WMB’s focus on natural gas, ENB is much more diversified among energy commodities. Its massive scale and impressive diversification are evident in its status as owner of:

  • the second longest natural gas transmission pipeline system in the United States
  • The largest natural gas distribution company in North America
  • longest crude oil pipeline system in North America
  • a fairly small but rapidly growing portfolio of wind and solar power generation assets

Both companies are also quite resilient to commodity prices. WMB’s stability is evident in the fact that it has increased its adjusted EBITDA, adjusted earnings per share, AFFO and dividend per share every year since at least 2018, including thanks to the fierce energy headwinds of COVID-19. of 2020. secure cash flows, with 98% of its contracts being resistant to commodity prices and 95% of its cash flows being backed by contracts with prime counterparties.

Overall, we give ENB a slight advantage here given its superior size and diversification and the strength of its counterparties, although both business models are very strong.

WMB vs. ENB – Dividend Security

WMB’s dividend coverage ratio is exceptionally high. For 2022, consensus analyst estimates put it at 2.1x and analysts expect its 2023 coverage ratio on its expected 2022 dividend payout to also be 2.1x.

Meanwhile, ENB’s dividend coverage ratio is not as strong, but still very conservative at 1.56x expected in 2022 and 1.55x expected in 2023. Another big feather in ENB’s cap is that it has increased its dividend every year for the past 27 years. years. Meanwhile, WMB has only increased its dividend for five consecutive years (including what it’s about to do in 2022).

Overall, however, WMB’s significantly higher hedge ratio makes it a safer dividend, although we have little to no concerns about the safety of ENB’s dividends.

WMB vs. ENB – Balance sheet

In terms of track record, ENB totally crushes WMB with a very impressive total return record compared to a rather mediocre track record for WMB:

That said, WMB has generated strong risk-adjusted returns on organic growth projects across its pipeline network over the past few years. Between 2018 and 2021, its return on invested capital averaged 18.9%, which is particularly impressive given that it includes the headwinds of the 2020 COVID-19 energy market.

Nevertheless, ENB is the clear winner in this category given its superior total returns over time.

WMB vs. ENB – Risks And Catalysts

ENB and WMB face very similar risks and catalysts given that they belong to the same industry. As midstream companies with strong counterparties, high-quality and well-diversified assets, long-term contracts that are fairly resilient to commodity prices and inflation, their short-term cash flow profiles are quite predictable. and stable.

However, if energy prices were to soar and remain higher for an extended period, this would likely mean large increases in cash flow going forward as new growth opportunities would likely open up and conditions contract renewals would probably be very favorable to them. On the other hand, if energy prices were to dip and stay lower for an extended period, it would likely mean that cash flow would decline over time, as growth opportunities would be scarcer, counterparties might start to debate and, in the end, the conditions for renewing the contracts would be shorter. favorable for them.

Another big difference is that WMB focuses entirely on natural gas whereas ENB is more diversified. As a result, WMB’s fortunes are more tied to the state of the natural gas industry, while ENB plays more on the broader midstream sector.

WMB vs. ENB – Valuation

When it comes to their relative valuations, WMB clearly looks cheaper in each of the major intermediate valuation metrics. However, ENB’s dividend yield is higher, which many intermediate investors value. Overall, however, we give WMB a slight edge here, as its EV/EBITDA and P/DCF multiples are significantly cheaper than ENB’s.

Evaluation metric



Dividend yield



Dividend yield (average over 5 years)






EV/EBITDA (average over 5 years)



P/DCF (2022)



P/DCF (2023)



Key takeaway for investors

ENB has a slightly stronger balance sheet and a better diversified portfolio of assets. Additionally, its track record of generating total returns and growing dividends dwarfs that of WMB. Its dividend yield is also 110 basis points higher than that of WMB.

That said, WMB is considerably cheaper on an EV/EBITDA and P/DCF basis, it benefits from being a pureplay in natural gas, and its balance sheet is still in good shape. In addition, its dividend is covered more than twice by distributable cash flow, giving it a very conservative dividend profile.

Overall, the choice between the two really depends on whether or not investors already have a diversified portfolio of midstream companies. If investors already own multiple midstream and energy companies and want pure exposure to natural gas, WMB is a great option. If investors are simply looking for a reliable blue chip dividend producer to give them exposure to the midstream sector, ENB is hard to beat.

Note: ENB is a Canadian company, while WMB is a US-based company. Both issue 1099 tax forms instead of K1s. Keep the tax ramifications in mind before investing in either.

We rate both as buys at this time.

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