Promising a Dividend Hike of 60%, Kinder Morgan Closes 2017 on a High
As the transporter of almost 40% of all the Natural Gas consumed in the US, Kinder Morgan Inc (NYSE: KMI), beat all analyst estimates when it posted revenues of $3,632m in Q4 2017 (quarter ending 31st December 2017), which was an increase of 7.2% year-on-year. Armed with a strong cash flow, KMI reaffirmed its promise of increasing the dividend to $0.2 in Q1 2018, which is a hike of 60% from its steady rate of $0.125 since January 2016.
The primary contributor to this strong growth was the 4% boost in the Natural Gas Pipelines segment’s performance in Q4 2017.
As the above graph shows, Kinder Morgan has lost more than 50% of its stock price in the last five years with a loss of 15% in 2017 itself. The downtrend in the stock prices was fuelled due to the steep dividend cut in 2015, which had led to a constant degree of mistrust in the company by retail investors.
The stock prices increased by 17.12% from its November 2017 low of USD 16.76 to USD 19.63 at the end of January 2018. Even though the stock prices decreased after Q4 2017 reports were declared, investors are positive looking at the growth in the cash flows and the performance of its projects. All in all, in Q4 2017, the company posted an EPS of 21 cents which was higher than the analyst estimates of 18 cents and the y-o-y of 19 cents.
The dividend story of KMI is never complete without mentioning the steep cut of 75% in the dividend payout done in December 2015. The downturn in the Oil market forced KMI to cut its dividend and free up the cash flow. This was followed up by the implementation of a sustainable growth outlook whereby the company poised itself on a path of debt reduction. This had a cascading impact on the stock prices, which went to a low of $13 on 15th January 2016; however, research has shown that this shifting of gears had a long-term benefit on the growth portfolio.
In Q4 2017, the company declared a dividend of $0.125 per share, which has been steady since the first dividend was declared in January 2016 after the steep cut in December 2015. In its Q4 earnings release, it has promised to increase its dividend to $0.20 for Q1 2018 ($0.80 for Annual 2018). If the company fulfills its word, this would mean that the yield would increase from its current 2.63% to 4.2% (at the share price of $19). It has also planned to achieve a dividend growth rate of 25% by increasing its dividend to $1.00 per share in 2019 and $1.25 per share in 2020.
In the competitive scenario, Kinder Morgan Inc has The Williams Companies, Inc. (NYSE:WMB) and Enbridge Inc (NYSE:ENB) as competitors. All three companies are attractive in terms of investments. Notable are the following facts:
- Williams has a Debt-Equity ratio of 1.09 compared to KMI’s 2.60, thus proving that Williams is more solvent than KMI. However, considering that KMI’s level of sales is greater, investors and analysts are bullish on KMI.
- Compared to Enbridge, Kinder Morgan expects to grow its dividend much faster as its Balance Sheet has gained strength and KMI sells its stock at a cheaper value.