Earnings Update: Kinder Morgan Inc.

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 |  About: Kinder Morgan, Inc. (KMI)
by: Albert Alfonso

Summary

Kinder Morgan Inc. posts its Q2 2014 results.

Cash available for dividends comes in at $0.32 per share, up 14% from last year, while the quarterly dividend was increased to $0.43 ($1.72 annualized), up 8% Y/Y.

I had predicted this level of dividend growth in an earlier article.

I remain bullish KMI with a PT of $45; by far the cheapest MLP GP out there.

Kinder Morgan Inc. (NYSE:KMI) had mostly an in line quarter for Q2. The company saw its cash available for dividends increase 14% to $332 million, or $0.32 per share. Do note that this includes an income tax payment of $273 million. In addition, Kinder Morgan rewarded its shareholders with yet another dividend increase to $0.43, up a penny from last quarter and 8% from last year. This was pretty much exactly what I predicted in a recent article. YTD, the dividend payout ratio is about 98%.

Kinder Morgan saw robust growth in its equity income coming from its MLPs Kinder Morgan Energy Partners (NYSE:KMP) and El Paso Pipeline Partners (NYSE:EPB). For KMP, payments were up 11%, almost 90% of which came from the IDRs. For EPB, total payments were up 10%, almost evenly split between distributions from its LP interest (KMI owns over 40% of EPB) and IDRs. In total, equity income was up 10.9%.

Notably, Kinder Morgan slowed down the pace of share buybacks to almost nothing, which I also anticipated due to the rise in its share price. However, funds were deployed to buy back some warrants, 19 million in total for $43 million. In addition, Kinder Morgan furthered its efforts into becoming a pure-play GP, divesting to EPB nearly a billion worth of midstream assets. I expect this trend to continue in future quarters. Using a dividend discount model, Kinder Morgan's FV is north of $45 per share, implying a 20% upside from current prices.

Disclosure: The author is long KMI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.