Kinder Morgan (NYSE:KMI) is a major energy infrastructure company in the oil and gas pipeline transportation business. In total, Kinder Morgan is involved in nearly 80,000 miles of existing pipeline infrastructure and still has a large backlog of new projects that will progressively add to its portfolio.
Like many pipeline companies, Kinder Morgan also offers a rather high dividend yield that allows it to pass part of its reliable cash flow stream back to its shareholders.
We lift the lid on Kinder Morgan’s financials and outlook to see if the KMI dividend is worth buying in today’s market.
KMI’s Yield and Growth
At just over 4%, there’s no doubt that Kinder Morgan’s dividend yield is appealing but it also doesn’t exactly wow when you compare to short-term Treasury bills or even savings accounts. Still, the S&P 500 as a whole averages just 1.3% even after its recent selloff so it leaves that yield in the dust in the rearview mirror.
Kinder Morgan’s dividend payout ratio is quite high at 97.9% and that should pique conservative investors worries. Although pipeline infrastructure companies can often support very high payout ratios, this has the real potential to put pressure on the stock’s forward dividend growth.
Kinder Morgan also hasn’t been growing its dividend at a particularly impressive rate over the last few years. On a trailing 5-year basis, the company has only increased its dividend at an annualized rate of 2.8%.
Given how high inflation has been during most of that time, shareholders haven’t seen a real increase in the amount of dividend income they’re receiving from their KMI investments.
What About Kinder Morgan’s Share Price?
At first glance, the slow dividend growth Kinder Morgan has produced over the last several years may make the stock look a bit lackluster.
The good news for existing shareholders is what KMI has lacked in dividend growth recently it has made up for with soaring share prices. In the past 12 months, Kinder Morgan shares have gained nearly 55%.
Surprisingly, this strong run hasn’t brought KMI to a point of unreasonable valuation. The stock is still only trading at 24.3 times earnings and 4.2 times sales, neither of which makes it look particularly overpriced.
Analysts also still seem to believe that Kinder Morgan could appreciate a bit more. The median target price for the stock right now is $30.35, which is 7% above the most recent closing price of $28.37.
KMI’s Top Line Dipped YoY But EPS Up 14%
Kinder Morgan is currently coming off of a fairly strong 2024. Although revenue was down slightly compared to 2023, full-year adjusted earnings per share rose 7% to $1.15.
Earnings growth was especially pronounced in Q4, when adjusted earnings came in at $0.32. This was 14% higher than the adjusted EPS Kinder Morgan reported in Q4 of 2023.
Things look slightly more concerning on a longer timeline, however. Kinder Morgan’s revenues peaked in 2022, fell off of their highs and have been largely plateauing since mid-2023. Although net income has increased over this period, the company will likely need to re-establish revenue growth in the long run.
One of the highlights of the Q4 earnings report, luckily, was a combination of two new projects worth a combined $3.3 billion. The company had already announced a $1.6 billion Mississippi pipeline earlier in the quarter, and its Q4 report revealed another $1.7 billion intrastate project in Texas. Such new projects could jump-start Kinder Morgan’s revenue growth again and help the company deliver higher earnings and dividends in the long run.
Can Kinder Morgan Grow Its Earnings Going Forward?
One of the most crucial questions about KMI right now is whether or not the company can raise earnings. Without additional growth, management will struggle to increase the dividend and the stock price will likely stagnate. Luckily, the forward potential for Kinder Morgan looks quite good.
Demand for LNG is quite strong at the moment, a fact that is reflected in the company’s existing backlog. As of the end of 2024, that backlog was worth $8.1 billion. The Trump administration’s friendliness to the energy sector is also likely to help companies like Kinder Morgan, as there’s a good chance that more pipeline projects will be started over the coming years.
The company may even prove to be an indirect beneficiary of the Trump administration’s signature tariff policies, as greater demand for US-produced energy in an environment where energy imports are more costly could create the need for additional pipeline infrastructure.
Incredibly, companies like Kinder Morgan may even benefit from the AI boom. Artificial intelligence data centers are already consuming gigantic amounts of electricity, and that demand is only expected to grow in the years to come. To solve the problem of providing power to these computing behemoths, many companies are looking at LNG power generation. Microsoft recently revealed that it would consider using natural gas to power its AI data centers, and Chevron and Exxon have both been exploring natural gas solutions for the same purpose.
Between strong LNG demand and an administration that will be extremely favorable to the energy industry, Kinder Morgan’s earnings could rise steadily in the near future. Analysts currently expect an annualized EPS growth rate of nearly 9% from KMI over the next 3-5 years.
Is Kinder Morgan’s Dividend Worth It?
All told, Kinder Morgan’s dividend does appear to be worth it, especially considering that the stock is still trading at a fairly reasonable valuation that doesn’t appear to have investors paying too much for the business in exchange for a high yield. These trends could also be promising for KMI’s dividend growth.
While those who buy Kinder Morgan today are quite unlikely to see the kind of massive increase the stock has delivered over the past year, there still seems to be decent room for long-term upside in KMI. A friendlier regulatory environment and rising LNG demand both support the argument that better times are ahead for Kinder Morgan,
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
