Kinder Morgan (NYSE: KMI) is up over 41% 12 months thus far, crushing the efficiency of the S&P 500 and the broader vitality sector. The run-up within the inventory value has taken the vitality firm’s shares to their highest degree since 2015. It has additionally pushed Kinder Morgan’s dividend yield all the way down to 4.6% — however that is nonetheless a a lot greater yield than traders can get from an vitality sector exchange-traded fund.
Let’s dive into the pipeline and infrastructure big’s third-quarter earnings report back to see what may drive the dividend stock even greater or what may start to carry it again.
Picture supply: Getty Photographs.
Excessive expectations for progress
Kinder Morgan’s earnings per share (EPS) have been up 17% in comparison with the third quarter of 2023, however on an adjusted foundation, earnings progress was flat. Adjusted EPS for the 9 months ended Sept. 30 rose simply 5% in comparison with the identical interval final 12 months. All instructed, respectable progress however nothing out of the extraordinary.
Kinder Morgan’s meteoric rise in 2024 is not a results of what it’s doing now however what its venture pipeline may ship within the coming years. It deserves a variety of credit score for making many savvy acquisitions over the previous couple of years that pair properly with its current belongings and diversify its income streams.
In 2021, administration acquired Stagecoach Gasoline Companies for $1.23 billion, which added pipeline and storage belongings complementary to its current Northeast infrastructure. Additionally in 2021, Kinder Morgan purchased Kinetrex Power for $310 million to diversify into the renewable pure fuel (RNG) enterprise. It then purchased North American Pure Assets for $135 million in 2022 to broaden its RNG portfolio additional.
As natural matter decomposes in landfills, it emits methane, which will be captured, processed, and changed into pipeline-quality fuel. Kinder Morgan’s RNG enterprise has confronted start-up delays, however it may nonetheless be a winner over the long-term.
In December 2023, the corporate closed its $1.815 billion acquisition of NextEra Power Companions‘ South Texas belongings. The deal is a wager on the sustained progress of pure fuel manufacturing from the Permian Basin and the export of that fuel to Mexico and liquefied pure fuel (LNG) from terminals alongside the U.S. Gulf Coast to patrons abroad.
In July, Kinder Morgan introduced the $3 billion South System Growth 4 Undertaking, which is a play on rising energy era and residential demand for pure fuel within the southeastern U.S. On its third-quarterearnings name it introduced an enlargement to its Gulf Coast Categorical Pipeline Undertaking, which transports pure fuel from the Permian Basin to Agua Dulce, Texas, a city simply west of Corpus Christi, one of many largest LNG export hubs within the nation.
Administration believes pure fuel will energy knowledge facilities and assist synthetic intelligence (AI) workflows. “In my many years of expertise within the midterm area, I’ve by no means seen a macro setting so wealthy with alternatives for incremental build-out of pure fuel infrastructure,” stated government chair Wealthy Kinder when discussing the longer term demand for pure fuel on the third-quarterearnings name
In sum, Kinder Morgan has loads of alternatives to take a position capital in tasks that may develop its free money move and, in flip, its dividend fee.
Kinder Morgan may cool off
Kinder Morgan’s venture pipeline ought to assist speed up its free money move and earnings progress. The corporate has modestly elevated its capital expenditures (capex) over the previous couple of years.
Nonetheless, during the last 5 years, its capex has been primarily flat, indicating that it’s taking a cautious strategy to progress. Within the early and mid-2010s, the corporate overly leveraged its steadiness sheet, resulting in a 75% dividend minimize throughout the downturn of 2015.
As you may see within the chart, Kinder Morgan has regularly elevated its dividend, however to not pre-cut ranges. Nevertheless, it has lowered its long-term debt web of money by 35% within the final 10 years.
KMI net total long-term debt (quarterly); knowledge by YCharts.
In 2019, the corporate elevated its quarterly dividend from $0.20 per share to $0.25 however has made tiny raises since then, with the present quarterly payout at simply $0.2875. Gone are the times of it being a 6% to 7% yielding inventory.
Kinder Morgan should show that its venture pipeline and long-term progress tendencies in AI and LNG exports can lead to significant money move and dividend progress. Nonetheless, it stays a strong approach to generate passive earnings, simply not as compelling as in previous years.
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Daniel Foelber has no place in any of the shares talked about. 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 writer and don’t essentially mirror these of Nasdaq, Inc.
