Kinder Morgan (KMI -1.77%) has grown into one of the country’s largest energy infrastructure companies. It has an irreplaceable portfolio of natural gas, refined products, crude oil, and carbon dioxide pipelines. The company also operates other energy midstream infrastructure, including natural gas processing plants, storage terminals, and renewable natural gas production facilities.
The energy company has a lot to offer investors these days. Here’s a look at whether it’s worth investing $1,000 into today.
Image source: Getty Images.
A compelling income stream
Kinder Morgan’s energy infrastructure assets generate very stable cash flow. The pipeline company gets about 95% of its earnings from predictable sources like take-or-pay agreements, fee-based contracts, or commodity price hedges. Nearly 70% of those frameworks entitle it to payment regardless of volume or price.
The company expects to produce about $5.9 billion in cash flow from operations this year, about 5% more than last year. Kinder Morgan anticipates paying out about $2.6 billion of that cash to shareholders in dividends. That’s about 2% more than last year. This year was the eighth straight year that Kinder Morgan has increased its dividend.
That gives Kinder Morgan a dividend yield of around 4%, about three times higher than the S&P 500‘s dividend yield of less than 1.5%. That high-yielding payout makes Kinder Morgan a compelling option for income-focused investors. For example, investing $1,000 into Kinder Morgan stock right now would produce over $40 of annual dividend income. That compares with less than $15 of dividend income each year from a $1,000 investment in an S&P 500 index fund.
Visible growth through 2029
Kinder Morgan should have no trouble continuing to increase its high-yielding dividend in the coming years. One factor driving that view is the visible growth it has coming down the pipeline.
The company ended the first quarter with $8.8 billion of expansion projects in its backlog. The bulk of those projects, totaling $8 billion, support the growing demand for natural gas. Kinder Morgan has several large natural gas pipeline expansion projects under way that it expects to complete by the end of 2029. These commercially secured expansions will provide it with incremental sources of cash flow as they enter service in the coming years.
Kinder Morgan’s growth prospects have gained steam over the past few years. The company ended 2023 with only $3 billion of expansion projects in its backlog. It has significantly enhanced and extended its growth outlook by securing several new gas expansion projects during the past few quarters.
The company expects to continue securing new projects in the coming years. CEO Kim Dang commented in the company’s first-quarter earnings press release, “The landscape for natural gas continues to be more and more favorable.” She noted that the company’s analysis indicates that U.S. natural gas demand could grow another 20 billion to 28 billion cubic feet per day (Bcf/d) by the end of the decade, up from 110 Bcf/d last year. Notable growth drivers include liquefied natural gas (LNG) export terminals and gas-fired power plants. Dang stated the company is “pursuing a substantial amount of additional LNG feedgas opportunities” and “actively pursuing well over 5 Bcf/d of opportunities to serve” the natural gas power generation market.
On top of organic expansions, Kinder Morgan has ample financial flexibility to pursue accretive acquisitions as opportunities arise. For example, the company recently bought a natural gas gathering and processing system in North Dakota backed by long-term contracts. That accretive deal will supply it with incremental cash flow while reducing its future capital spending needs to expand its operations in the region.
Income and growth
Kinder Morgan looks like a compelling investment opportunity these days. The pipeline giant pays an attractive and steadily growing dividend. On top of that, it’s seeing a growth resurgence fueled by accelerating demand for natural gas. This combination of income and growth could power strong returns for investors in the coming years. That makes Kinder Morgan look like a great stock to invest $1,000 into today.
Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
