Kinder Morgan Inc: Is KMI Stock Worth Owning?
August 11, 2017
Is KMI Stock a Strong Dividend Growth Candidate?
Dividend growth investing shouldn’t be an income strategy that is ignored within investment portfolios.
Dividend growth investing supports a higher income that would be paid to you as an investor over time. This would occur because there is a higher revenue that is being generated from the business operations. Lastly, it supports the possibility for a higher market cap size for the company, which is reflected in the stock price.
One company that many investors might want to consider for their investment portfolios is Kinder Morgan Inc (NYSE:KMI) stock. KMI stock is an energy infrastructure company that is focused on transporting energy such as natural gas and oil within and across borders (within the U.S. and Canada). All these business activities are done through the Kinder Morgan pipeline assets and storage facilities.
Let’s take a look at why KMI stock could be considered as a potential investment and how investors can benefit from the dividend growth.
Growth Through the Payout
First off, when a dividend is paid to investors, it is done through the revenue that is generated. The company’s management team intends to earn more revenue than what is paid out. Whatever remains is reinvested for more growth within the business. The decision of growing the dividend is based solely on the management’s desire to reward shareholders.
Regarding Kinder Morgan, the management team is not shy about rewarding shareholders with a growing payout; from 2013 to 2015, there were eight dividend hikes, which would translate into 27% growth. Also, the stock price over this time period increased by 22%. This move shows the markets that the company is willing to continue rewarding shareholders further.
In July of this year, the management team said that it expects the dividend in 2018 to grow by 60%. With this expectation, it means that the management team believes that revenue is going to grow. The dividend growth outlook is projected to be an average of 25% from 2018 to 2020; therefore, there are more dividend hikes expected for shareholders beyond 2018. (Source: “Kinder Morgan Announces Expected 60% Dividend Increase for 2018 and Projects 25% Annual Dividend Growth from 2018 Through 2020,” Kinder Morgan Inc, July 19, 2017.)
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Also, the management team has decided to implement a share buyback program, which only adds to investors’ total net worth over time. Unlike a dividend payment, which is a cash payment to shareholders, this action creates a larger portion of the company owned by long-term investors. This occurs because shares are being bought, resulting in fewer available shares traded on the markets. Then over time, each share in the hands of shareholders is worth more, on a percentage basis, of the company. Also, this action supports the stock price from seeing a dramatic drop since there is continued buying of the shares by Kinder Morgan.
Why There Is the Potential for Dividend Growth from KMI Stock
Kinder Morgan operates in a competitive environment, which would be known as an oligopoly. This is simply a company that only competes directly with a handful of other companies and each one owns a large market share of the business segment.
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This also helps to protect revenue, because there are no new companies entering the market place that are taking market share away from Kinder Morgan stock. Since KMI operates in transporting energy across North America, there is a ton of capital that is initially required in order to have operations up and running. After the initial capital is deployed, the margins seen from the business are quite large since there is only general maintenance cost. This is why there is potential for more dividend hikes, since KMI has already deployed the capital and is now generating cash flow from operations.
Bottom Line on KMI Stock
KMI stock is a great example of a strong business that rewards its shareholders with strong profits. The management team has laid a plan of what to look forward to as an investor, which is quite rare from other public companies; investors are normally left in the dark.
KMI stock is offering a dividend yield of 2.55% and the quarterly dividend payment would amount to $0.125 per share.
