Kinder Morgan: A Recession-Resistant High-Yielder At Low Prices

Kinder Morgan Incorporated (NYSE: KMI) has a long and controversial history among dividend investors.

They cut their dividend a few years ago, but have since recapitalized the company into a much more reliable platform for dividend growth going forward.

After the late-2018 sell-off, I’m certainly a buyer of Kinder Morgan at today’s prices. Dedicating a portion of your asset allocation to dividend stocks like KMI is a good form of diversification.

Kinder Morgan Stock

Source: Google Finance

Kinder Morgan: Old Vs New

Kinder Morgan is the largest transporter of natural gas in the United States. Their map of operations spreads over the whole country:

Kinder Morgan Map of Operations

Source: Kinder Morgan December 2018 Investor Presentation

They own or operate 70,000 miles of natural gas pipelines, 10,000 miles of petroleum products pipelines, and over 150 terminals.

The old version of the company was heavily-leveraged and reliant on continually issuing new shares to fund growth projects. But when oil prices crashed in 2015, and their share price dropped, and they couldn’t continue issuing new shares to fund growth when their share price was so low, so it was a vicious cycle and a liquidity crisis. This fragile business model was punished as the company was forced to cut its dividend and sell a lot of assets to stay solvent.

After years of recovery, the company is now positioned to continue growing a lot more safely than before.

Rather than being heavily-leveraged, the company now only has 4.5x debt to EBITDA, which is reasonable for the midstream industry. Rather than relying on issuing new shares to fund growth, the company is now self-funding, and a net buyer of its own stock. The company pays less than 50% of its distributable cash flow as dividends (currently yielding over 5%), and the rest to fund growth.

Therefore, they have the same amazing infrastructure assets that they’ve always had, but now with a sound financial structure.

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Disclosure: The author is long KMI and ENB.

Disclaimer: Modest Money is designed to provide entertainment and information to investors and those who would like to learn about the market, ...

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