Let's talk about Kinder Morgan (NYSE:KMI) for a few minutes. Many analysts have written about the company over the last few months. Some analysts suggest avoiding the company's stock, simply because they believe Kinder's Trans Mountain pipeline project still has significant obstacles to overcome. Others believe now is the time to invest in Kinder because they are optimistic the pipeline will receive approval.
On December 19, the Canadian government will either give the pipeline expansion the green light or another delay will occur. Approval for the project has been delayed for the past two years. Still, according to reports, Canadian Prime Minister Trudeau is solidly behind the project.
Naysayers in Canada cite the following reasons for disapproving the pipeline expansion: more oil tankers equal more potential for oil spills, and territorial rights of the First Nations.
Despite the aforementioned obstacles, the simple truth is that Canada needs the project to go forward for economic reasons. With around 170 billion barrels of oil waiting in the wings, the economic impact cannot be dismissed. The direct economic impact for Canada is about $50 billion: $5.7 billion to British Columbia; $19.4 billion to Alberta; and $21.6 billion throughout Canada. And the total tax revenue would be another $50 billion.
According to CBC News, Trudeau's cabinet is meeting today to discuss the Trans Mountain pipeline. Leaders of the First Nation asserted the belief that the Canadian government would approve the pipeline expansion. Approval of the pipeline is projected to add 15,000 construction jobs and 37,000 jobs when in operation.
Note: Hours after this article was submitted, Canada announced it would approve the Trans Mountain pipeline expansion.
The oil has to move, if not by pipeline, then by tanker trucks or railcars. Either method is archaic, especially since the demand for natural gas in the U.S. is expected to increase 35% by 2025.
If the project is approved, Kinder Morgan's cash flow prospects will improve drastically, pushing the share price to the $25 range almost immediately. The big question, of course, is will approval be granted? As already discussed, the Canadian government is all for it. And Canada's government officials are very aware of the new U.S. administration's outlook on oil and pipelines. Thus, circumstances would indicate approval is imminent.
Another factor that makes Kinder Morgan attractive is analysts' expectations that the company will increase its payouts twofold in 2018. Kinder Morgan dropped its payouts 75% - from $0.51 to $0.125 - at the end of 2015. This reduction occurred to safeguard the company's cash flow. Once the Trans Mountain pipeline is approved, Kinder Morgan should have no problem lining up funds for the expansion. This will free up cash earmarked for construction, which can be used for payouts to investors.
Now, while the share price is down, $21.34, is the time to invest in Kinder Morgan. Investors should look for approval of the pipeline expansion, which will immediately increase the share price. This will mitigate the company's cash flow woes and boost revenue, allowing increased payouts during 2018 and into the future.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.