Kinder Morgan (NYSE: KMI) provides traders a big-time revenue stream. The pure fuel pipeline big at present yields 6.4%, which is likely one of the highest payouts within the S&P 500 (the place the typical is 1.4%). Regardless of its excessive yield, Kinder Morgan provides one of many most secure revenue streams in that broad market index.
The protection of its payout was evident in its first-quarter report. Here is a take a look at these numbers and why they put the pipeline stock’s big-time dividend on a rock-solid basis.
As regular because it goes
Kinder Morgan produced $1.4 billion, or $0.64 per share, of distributable money circulation (DCF) through the first quarter. DCF was up 5% from final yr on a per-share foundation.
It simply lined the corporate’s high-yielding dividend, which it not too long ago raised by about 2% to $0.2875 per share every quarter ($1.15 annualized). That marked the corporate’s seventh straight yr of accelerating its dividend.
The pipeline firm continues to provide very secure and rising money circulation. Roughly 68% of its earnings come from take-or-pay and hedging contracts, which lock in its income. Most of its remaining earnings come from long-term, fee-based contracts, limiting its publicity to commodity value volatility.
In the meantime, its secure cash-flow sources are rising as the corporate expands its operations. Kinder Morgan delivered earnings development throughout 3 of its 4 working segments within the first quarter:
Information supply: Kinder Morgan. Chart by the creator.
Earnings within the firm’s core pure fuel pipeline enterprise rose 7% yr over yr. Fueling that enchancment was increased margins from its storage property, increased volumes from its gathering programs, and the acquisition of STX Midstream.
Kinder Morgan’s merchandise pipeline operations had a standout quarter, with earnings surging 17%. The corporate benefited from increased charges on current property and contributions from not too long ago accomplished capital tasks. Lastly, earnings from its terminals rose 6%, pushed by liquids terminals growth tasks and better charges on its Jones Act terminals.
The earnings development from these three segments greater than offset the 4% earnings decline from its carbon dioxide enterprise. The primary drag was decrease carbon dioxide gross sales volumes. Commodity value actions largely offset one another. Likewise, decrease crude oil volumes offset increased pure fuel liquids output.
Kinder Morgan produced practically $1.2 billion in money circulation from operations through the first quarter. It paid out about half that cash in dividends ($631 million) and used about half to fund capital bills ($619 million). That left it with a slight shortfall ($61 million) that it simply lined with its sturdy stability sheet.
Kinder Morgan ended the interval with a 4.1x leverage ratio, nicely inside its 3.5x-4.5x goal vary. That supported the corporate’s investment-grade credit standing.
On observe for an additional stable yr
Kinder Morgan’s stable displaying within the first quarter saved it on observe to realize its full-year steerage forecast. The pure fuel pipeline firm expects to provide about $5 billion, or $2.26 per share of DCF. That may put its dividend payout ratio at round 51% this yr, which could be very conservative for an organization producing such secure money circulation.
Because of this, it ought to generate rather less than $2.5 billion in extra free money circulation that it may well use to fund capital tasks and preserve its sturdy monetary flexibility. It expects capital spending to be on the higher finish of its $1 billion-$2 billion annual vary within the close to time period.
The corporate ended the primary quarter with $3.3 billion of dedicated capital tasks in its backlog, a rise from $3 billion on the finish of final yr. Kinder Morgan continues to seek out high-return growth tasks, with the majority (80%) targeted on lower-carbon vitality like pure fuel, renewable pure fuel, and renewable fuels.
The midstream firm’s rising earnings and projected extra free money circulation drive its view that it’s going to finish this yr with a 3.9x leverage ratio. That provides it extra monetary flexibility to make opportunistic acquisitions or share repurchases.
A particularly stable dividend inventory
Kinder Morgan generates very sturdy money circulation that steadily rises. That allows the pipeline firm to pay a lovely dividend, put money into its continued growth, and preserve a powerful stability sheet. These options put its big-time payout on a agency basis, making Kinder Morgan a wonderful choice for these looking for to gather a steadily rising passive-income stream.
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Matt DiLallo has positions in Kinder Morgan. The Motley Idiot has positions in and recommends Kinder Morgan. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
