High Yield Kinder Morgan: Buy, Sell or Hold?

If you are considering investing in the midstream sector, child morgan (K.M.I. 1.05%) This will probably be one of the standouts. It is an industry leader with a market capitalization of nearly $40 billion and a geographically diverse business. Add in a 6.3% dividend yield, and there’s a lot to like here. But before you join, you need to learn more about the company. Here’s why:

Would you like to buy Kinder Morgan?

Kinder Morgan, to name a few of its positive aspects, has midstream assets that are virtually impossible to replace or replace. Its operations are located throughout the United States and include pipeline, storage, transportation and processing assets. Approximately 64% of the company’s operations are tied to natural gas, a key transition fuel as the world transitions to low-carbon energy sources. The remainder is distributed among refined products (26%) and CO2 (10%).

Image source: Getty Images.

While there are other large midstream companies, Kinder Morgan boasts that it has the “largest natural gas transmission network,” is the “largest independent transporter of refined products,” and is the “largest independent terminal operator.” Given the significant nature of its midstream assets and their ability to generate cash flow, Kinder Morgan is very well positioned in the energy sector.

It also has $3 billion in capital spending plans to expand its portfolio through at least 2026. Once these assets are operational, they will strengthen cash flow and improve the company’s ability to pay dividends. Meanwhile, Kinder Morgan has been working to reduce leverage, with its earnings before interest, taxes, depreciation and amortization (EBITDA) ratio falling 30% from its peak in 2018.

KMI Financial Debt – EBITDA(TTM) data on YCharts

Now add in a dividend that has grown every year for six years, an investment grade balance sheet, and a 6.3% yield. It’s clear that there are very good reasons to like Kinder Morgan.

Get a Kinder Morgan?

If you own Kinder Morgan and are happy with the company and its dividend (more on this below), there is no reason to sell the company. It appears to be very well positioned today to offer investors slow, sustained growth based on a fee-based portfolio of key energy infrastructure. Rate of return will make up the largest portion of your profits. But you probably knew that. In fact, if you’re a dividend investor looking to live off the income your portfolio generates, you may have purchased that portfolio specifically for its dividends. However, a slight complication arises here.

Do you want to sell your Kinder Morgan?

Kinder Morgan cut its dividend by 75% in 2016. The financials are much better today than they were back then, and the dividend is back in growth mode. But in late 2015, the company told investors to expect a dividend. Increase In 2016, it reached a whopping 10%. Rather, what they got was a huge shock.

As dividends begin to grow again, management has laid out plans for large annual dividend increases through 2020. But come 2020, investors were treated to a 5% dividend increase instead of the promised 25% increase. In both cases, Kinder Morgan probably made the right move for the company, but still failed to deliver on key promises.

KMI Dividends Per Share (Quarterly) data from YCharts

It would be very reasonable for more conservative investors to have confidence issues with dividends being the main reason they buy stocks. If dividend performance is an issue, you should avoid Kinder Morgan. There are many other high-yield midstream companies you can buy, including: Enbridge (ENB 0.53%) and Enterprise Product Partner (EPD 0.45%), which has been increasing its dividend even during difficult times for the energy industry. (In the graph above, Enbridge pays its dividend in Canadian dollars, so the dividend value changes with exchange rates. Enbridge has increased its dividend for 29 consecutive years.)

Kinder Morgan is ok as long as you know the history and it’s ok with you.

Kinder Morgan is one of many midstream companies you can buy, and it’s not necessarily the most profitable option. But it has built a large business with a lot going on. Yields are attractive and dividend growth is likely to continue in the near term, depending on the company’s investment plans. If you can forgive your past misgivings, there’s no particularly compelling reason not to buy or continue to hold the stock. But historically, Kinder Morgan has fallen short of its competitors in terms of dividends. If that’s a concern, you might want to look at better-performing mid-cap companies like Enterprise and Enbridge, considering dividend yield is one of the main reasons to like the stock.