Kinder Morgan (NYSE: KMI) affords buyers a big-time earnings stream. The pure fuel pipeline big presently yields 6.4%, which is likely one of the highest payouts within the S&P 500 (the place the common is 1.4%). Regardless of its excessive yield, Kinder Morgan affords one of many most secure earnings streams in that broad market index.
The security 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 inventory’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 movement (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 just lately 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 movement. 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:
Earnings within the firm’s core pure fuel pipeline enterprise rose 7% yr over yr. Fueling that enchancment was greater margins from its storage belongings, greater volumes from its gathering methods, and the acquisition of STX Midstream.
Kinder Morgan’s merchandise pipeline operations had a standout quarter, with earnings surging 17%. The corporate benefited from greater charges on present belongings and contributions from just lately accomplished capital tasks. Lastly, earnings from its terminals rose 6%, pushed by liquids terminals enlargement 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 principle drag was decrease carbon dioxide gross sales volumes. Commodity value actions largely offset one another. Likewise, decrease crude oil volumes offset greater pure fuel liquids output.
Kinder Morgan produced almost $1.2 billion in money movement 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 robust steadiness 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 strong yr
Kinder Morgan’s strong displaying within the first quarter saved it on observe to attain 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 may be very conservative for an organization producing such secure money movement.
In consequence, it ought to generate rather less than $2.5 billion in extra free money movement that it will probably use to fund capital tasks and preserve its robust 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 enlargement tasks, with the majority (80%) centered on lower-carbon power like pure fuel, renewable pure fuel, and renewable fuels.
The midstream firm’s rising earnings and projected extra free money movement drive its view that it’s going to finish this yr with a 3.9x leverage ratio. That offers it extra monetary flexibility to make opportunistic acquisitions or share repurchases.
An especially strong dividend inventory
Kinder Morgan generates very sturdy money movement that steadily rises. That permits the pipeline firm to pay a horny dividend, put money into its continued enlargement, and preserve a robust steadiness sheet. These options put its big-time payout on a agency basis, making Kinder Morgan a superb possibility for these searching 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 coverage.
This 6.4%-Yielding Dividend Inventory Stays an Extraordinarily Protected Possibility for Passive Revenue was initially printed by The Motley Idiot
