Natural gas investment should continue to grow due to demand in part because they're cheaper than other resources and already have the infrastructure in place to harvest. Due to these factors, natural gas dividend investors may find themselves in a good situation later on.
If you're ready to board the natural gas investment train, you may want to consider Kinder Morgan (NYSE: KMI). Let's take a look at reasons for and against investing in the company, what to know before you invest and how to make your final decision.
About Kinder Morgan
In 1997, a group of investors, executive chairman Richard D. Kinder and vice chair William V. Morgan began Kinder Morgan Energy Partners. In 1999, the company took over KN Energy, an integrated natural gas pipeline company, the second publicly traded company owned by Kinder Morgan.
In 2001, Kinder Morgan Management LLC (NYSE: KMR), a third publicly traded Kinder Morgan company, was formed to manage ownership of KMP equity. Kinder Morgan purchased Terasen Inc. in 2005 for approximately $5.6 billion.
In 2011, the company again began trading on the New York Stock Exchange and its IPO issued nearly 110 million shares, raising about $3.3 billion. The company later acquired El Paso Corporation in 2012, officially making it one of the largest energy companies and natural gas network operators in North America. In 2013, Kinder Morgan acquired Copano Energy.
In 2014, Kinder Morgan acquired all public shares of Kinder Morgan Energy Partners, Kinder Morgan Management LLC and El Paso Corporation in a $76 billion deal.
Now, Kinder Morgan Inc., based in Houston, operates as an energy infrastructure company and runs four segments. The Natural Gas Pipelines segment runs interstate and intrastate natural gas pipeline and underground storage systems, natural gas gathering systems and natural gas processing and treating facilities. It also handles natural gas liquids fractionation facilities and transportation systems and liquefied natural gas liquefaction and storage facilities. Kinder Morgan's Products Pipelines segment operates refined petroleum products, crude oil and condensate pipelines, associated product terminals and petroleum pipeline transmix facilities. The Terminals segment owns tankers and also operates liquids and bulk terminals that store gasoline, diesel fuel, chemicals, ethanol, metals and petroleum coke. The Carbon Dioxide (C02) segment produces and transports CO2 to recovery and production crude oil from mature oil fields and more.
Reasons to Consider Kinder Morgan Inc. Stock
Let's take a look at a few reasons why you might want to consider investing in Kinder Morgan:
- Balance sheet: Kinder Morgan reported $5.15 billion in revenue, 63.5% higher than the $3.15 billion reported a year ago and beating analyst expectations. Stronger-than-expected commodity prices and results from its segments helped drive the positives in the balance sheet.
- Cash flow generation: Cash flows came in strong in Q2, with distributable cash flow at $1,176 million compared to $1,025 million. Share buybacks also signaled good things for the company. Because of its positive results, the company repurchased 16 million shares. Cash and cash equivalents fell from $1.1 billion during the same quarter in 2021 to $100 million during Q2. Despite this cash flow reduction, it shouldn't hurt the company's strong footing.
- Dividend potential: Kinder Morgan shows evidence of a strong dividend and good growth potential. With a dividend yield of 6.24%, annual dividend of $1.11 and a dividend increase track record of five years, Kinder Morgan has the potential to continue its dividend growth.
- Expansion: As one of the largest energy infrastructure companies in North America with 83,000 miles of pipelines and 141 terminals, the company continues to expand and invest in its infrastructure. For example, its Gulf Coast expansion will add another 570 mmcf and additions to terminals and product pipelines should also increase capacity and meet demand.
Reasons to Steer Clear of Kinder Morgan Inc. Stock
Why might you want to go a different direction when you invest? Let's take a look.
- High dividend yield: You might be concerned about Kinder Morgan's high dividend yield. If a company may not have enough earnings to cover its dividend payment in the future, it's a potential risk. This year, Kinder Morgan expects to distribute about $2.5 billion to investors, which is about a 53% dividend payout ratio. It's important to note, however, that for a company with its cash flow and potential, it's a stable ratio. Furthermore, the company's expansion projects should help it grow further.
- BBB debt rating: As interest rates rise, high debt levels increase risk, and Kinder Morgan has a BBB level debt rating. Its debt to market value of equity is 79% and a debt balance of $33.3 billion. This could put dividends' investments at risk and the high debt to equity ratio also puts pressure on the company as a whole.
Should You Consider Kinder Morgan Inc.?
Kinder Morgan Inc. is a relative unknown entity compared to the Dividend Aristocrats or Dividend Kings stocks. However, if you're looking for a solid company in the energy space that transports natural gas, gasoline, crude oil, CO2 and more, Kinder Morgan Inc. might be your definitive answer.
Stock buybacks, recently increased guidance and positive fundamentals may help you determine that the company's returns may continue to lead compared to similar peers in the same niche. You may also want to consider the position of this type of company in the broader scope of energy investing as well. The future may not bode well for nonrenewable-resource companies as a whole.
However, it's a good idea to consider whether you want to purchase Kinder Morgan as part of a diversified portfolio. Consider whether you want to live off your dividend investments or prefer to reinvest your dividends, for example. If you want to cash out in retirement or continue to live off your dividends, that might influence how you invest.
Learn more: 6 Benefits of Dividend Stocks (and 4 Downsides)
and How to Build a Large Dividend Stock Portfolio
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Kinder Morgan (KMI)||$17.10||+2.8%||6.49%||15.98||Hold||$21.00|
|Kinder Morgan Management (KMR)||$0.00||-100.0%||N/A||N/A||N/A||N/A|
|Kinder Morgan Energy Partners (KMP)||$0.00||flat||N/A||N/A||N/A||N/A|