Kinder Morgan, Inc. (NYSE: KMI)
Kinder Morgan operates one of the largest networks of natural gas, oil, and carbon dioxide transportation and storage in North America. According to the company, about 40% of the natural gas used in the U.S. has travelled through Kinder Morgan's approximately 70,000 miles of natural gas pipelines. Having recently announced a dividend yield hike this week, Kinder Morgan has seen an increase in mentions by 100% over the last day, prompting investors to wonder what makes the stock gain so much hype. Currently, Kinder Morgan shares trade at $18.05 per share.
Although it might not be a household name, Kinder Morgan is one of the biggest players in its industry. Given its expansive reach and solid growth, there are bound to be reasons that make it a good investment. Here are some of them.
Kinder Morgan announced a 3% hike to its dividend (over the sum paid out in Q2 2021), resulting in a 6.5% forward dividend yield for the stock. The company also repurchased 16.1 million shares already this year.
Shares of Kinder Morgan are up about 10% this year, which is impressive considering that the S&P 500 saw a dip of over 20%.
During the second quarter, Kinder Morgan generated $1.176 billion, or $0.52 per share, of distributable cash flow which helps fund the dividend yields it boasts.
Kinder Morgan had initially forecast that it would produce $4.7 billion, or $2.07 per share, of distributable cash flow this year. However, with market conditions improving, management now expects its 2022 results to come in about 5% above that number which is a good sign.
The company has already secured a couple of new high-return expansion projects this year. In addition, it recently made a deal to boost its renewable natural gas business which means that it’ll be in business despite the shift away from oil.
Shares are currently trading at a forward price-to-earnings ratio of 15, representing a discount to their five-year average forward P/E of 18.9 making it a good time to buy them now.
With its share price recently at $17.25 (now $18.05), it trades at about eight times cash flow, giving it a 12% free cash flow yield making it a relatively cheaper buy.
No company is perfect, and Kinder Morgan isn’t an expectation to this rule. Here’s one reason that it might not do as well in the immediate future.
Kinder Morgan has been expanding at a much slower rate than earlier, where their old $3 billion expansion budget has been halved. This means there is a chance that cash flow won't grow as fast in the future, limiting its ability to increase the dividend.
Considering the impressive dividend yield, increases in cash flow and superb growth prospects, it makes sense to have Kinder Morgan on your radar especially considering its last earnings report. However, this growth isn’t as high as it was earlier and might not last either. In any case, Kinder Morgan has done rather well for itself and it would be wise to consider taking a position in the company.
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