Aggressive Kinder Morgan Provides Enticing Dividend Growth

Jul.18.12 | About: Kinder Morgan, (KMI)

Kinder Morgan, Inc. (KMI) continues to deliver results for dividend income investors. The entire Kinder Morgan collection of publicly traded companies is the 4th largest energy company in North America. Kinder Morgan is the largest general partner in the master limited partnership space. The vast energy complex has an enterprise value of over $100 billion. The general partner should continue to increase dividends and reward shareholders.

KMI Total Return Price ChartClick to enlarge

KMI Total Return Price data by YCharts

Kinder Morgan's General Partnership Role

Kinder Morgan is the general partner of Kinder Morgan Energy Partners, L.P. (KMP) and El Paso Pipeline Partners, L.P. (EPB). In addition, the general partner owns limited partner interests in Kinder Morgan Energy Partners, L.P., Kinder Morgan Management, LLC (KMR) and El Paso Pipeline Partners, L.P. The general partner owns over 90 million units in El Paso Pipeline Partners.

KMI Total Return Price ChartClick to enlarge

KMI Total Return Price data by YCharts

Kinder Morgan Management LLC trades at a discount to Kinder Morgan Energy Partners, L.P. The LLC entity pays dividends via "i units". The entity, as displayed below, owns significant portions of the other Kinder Morgan complex.

The 2012 expected distribution is expected to be $4.98. This represents a 6.25% payout. Based upon a 10 Year 1.50% Treasury Bond yield, this is an enticing payout.

Kinder Morgan Energy Partners, L.P. pays distributions via cash. Investors prefer this method to a greater extent then "i units". The yield is currently 5.7%.

Growth Strategies

The El Paso Pipeline Partners, L.P. allows Kinder Morgan to have natural gas pipeline infrastructure to all major natural gas development sites. Liquid natural gas exports is an additional growth opportunity.

Kinder Morgan has discussed and highlighted plans for shale play liquids infrastructure build out. The central aspect is a stable fee driven revenue stream.

Kinder Morgan has not hesitated to make acquisitions which promote growth and opportunity. On July 17th, Kinder Morgan and Peabody Energy (BTU) announced "...long term agreements to secure and expand the Gulf Coast export platform for Peabody's Colorado, Powder River Basin and Illinois Basin coal products." These deals will be accretive and stable. The benefits are a fee based revenue and profit stream.

Largest Midstream Operator

I prefer an energy company to generate profits as a toll booth business. Kinder Morgan excels at that function. They are the largest midstream operator in N. America. The business collects fees as natural gas, oil, natural gas liquids need transportation, storage, and processing.


I believe owning Kinder Morgan, the general partner, has the highest financial upside amongst the Kinder Morgan complex. The dividend growth should exceed the distribution growth of the remaining assets. As the largest toll booth operator, as a midstream energy company, the general partner will earn profits and revenues based upon third party usage of prized energy assets. The revenue and profit streams are predictable and stable in nature. This is ideal for a dividend income investor.

Disclosure: I am long KMI.