Should Investing in Kinder Morgan Stock Be Considered?
If you're eyeing Kinder Morgan (KMI misbehaving at 2.10%), it's likely you're drawn by its juicy 5.2% yield or its towering presence as one of the most substantial midstream companies in North America. However, before diving in, there's a tale you need to understand. Kinder Morgan may prove challenging for some traditional income investors to justify their investment.
So, what's in the card for Kinder Morgan?
Kinder Morgan is a pipeline kingpin, managing vital midstream infrastructure like pipelines, storage, transportation, and processing assets. This sector is critical for the energy sector as it facilitates moving oil and natural gas from where they're produced to where they're needed. With energy demand remaining a strong contender, Kinder Morgan's infrastructure will remain crucial for its energy industry clients as long as oil and gas continue to dominate the landscape.
Kinder Morgan's forte lies in its role as a toll collector. It charges for asset usage, making demand for energy far more pivotal than the commodity prices hovering atop its system. In a nutshell, the demand for oil and gas shapes Kinder Morgan's wellbeing.
The 5.2% yield on offer is so high as it surpasses what an 'S&P 500' index fund promises (1.2%) and outperforms the industry average energy stock yield (3.2%). The dividend has been on a joyride since 2017. And its impeccable investment-grade balance sheet is a cherry on top. All seems dandy, right?
Make no mistake about it – Kinder Morgan is a dividend darling. But there's a catch – a significant one at that. Typically, traditional income investors yearn for companies that possess robust potential to pay dividends through thick and thin. Investors envision holding companies that are highly likely to meet their dividend commitments. Kinder Morgan's history on this front, however, leaves room for improvement.
The trouble goes back to 2015 when management hinted: "While we are in the early stages of our budget process for 2016, we expect an increase of 6-10% over the 2015 declared dividend of $2.00 per share. We anticipate this range will allow for flexibility in meeting our dividend payouts and having excess cash coverage."
Fast forward to December 2015, Kinder Morgan opted to slash its dividend by 75% in 2016. You might ask why it happened. Fair enough. Kinder Morgan had to make a tricky choice between funding its capital investment plans and maintaining its dividend due to an already burdensome debt load. But, dividend investors who trusted management's word probably felt short-changed!
And, then came 2020, when Kinder Morgan fell just short of its ambitious aim of increasing the dividend by a whopping 25% to reach an annual dividend of $1.25 per share. The plan aimed to build back investor trust, but being stuck in uncertainty surrounding the coronavirus pandemic allowed it to boost its dividend by only 5%. Management reiterated, "We remain committed to increasing the dividend to $1.25 annually." However, as of 2024, it's still a work in progress.
Once again, Kinder Morgan likely made the right move for its business, but dividend investors who trusted its management may have found themselves à la disgruntled. This has happened twice within less than a decade. If consistency in payments is paramount for you, Kinder Morgan may prove a tricky stock to stomach.
Assessing the merits of investing in Kinder Morgan becomes even trickier when you consider that rival Enterprise Products Partners (EPD) has a 7.1% yield. This yield is backed by an investment-grade balance sheet and a staggering 26-year streak of distribution increases.
If you're on a quest for a sizable, secure income stream, you may find better potential in the midstream space with Enterprise Products Partners in sight.
Given Kinder Morgan's fluctuating dividend history, it's important for potential investors to consider their risk tolerance when it comes to finance and money. Despite its high yield, investors may want to explore more reliable income options with a track record of consistent dividend increases, such as Enterprise Products Partners.
Investing in Kinder Morgan requires a deeper understanding of its financial situation and dividend policies, as its dividend Йield has varied significantly in recent years. This includes evaluating the company's ability to manage its debt and maintain its dividend payments in the long term, as well as considering the potential impact of commodity price fluctuations on the company's revenue.
