Kinder Morgan (NYSE: KMI) provides buyers a big-time revenue stream. The pure gasoline pipeline large at present yields 6.4%, which is among the highest payouts within the S&P 500 (the place the common 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. This is a have 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 circulation (DCF) in the course of the first quarter. DCF was up 5% from final 12 months on a per-share foundation.
It simply coated 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 12 months 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:
Earnings within the firm’s core pure gasoline pipeline enterprise rose 7% 12 months over 12 months. Fueling that enchancment was increased margins from its storage belongings, increased volumes from its gathering techniques, 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 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 increased pure gasoline liquids output.
Kinder Morgan produced almost $1.2 billion in money circulation from operations in the course of 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 coated with its robust stability sheet.
Kinder Morgan ended the interval with a 4.1x leverage ratio, properly inside its 3.5x-4.5x goal vary. That supported the corporate’s investment-grade credit standing.
On observe for an additional stable 12 months
Kinder Morgan’s stable displaying within the first quarter stored it on observe to realize its full-year steering forecast. The pure gasoline 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 12 months, which could be very conservative for a corporation producing such secure money circulation.
In consequence, it ought to generate rather less than $2.5 billion in extra free money circulation that it may possibly use to fund capital tasks and keep 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 12 months. Kinder Morgan continues to search out high-return enlargement tasks, with the majority (80%) centered on lower-carbon power like pure gasoline, renewable pure gasoline, and renewable fuels.
The midstream firm’s rising earnings and projected extra free money circulation drive its view that it’ll finish this 12 months with a 3.9x leverage ratio. That offers it further monetary flexibility to make opportunistic acquisitions or share repurchases.
An especially stable dividend inventory
Kinder Morgan generates very sturdy money circulation that steadily rises. That permits the pipeline firm to pay a horny dividend, put money into its continued enlargement, and keep a robust stability sheet. These options put its big-time payout on a agency basis, making Kinder Morgan a wonderful possibility 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 coverage.
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