Kinder Morgan, Inc. (KMI) hiked its annual dividend by 17%. This significant increase was announced in conjunction with its second quarter earnings. Kinder Morgan is the general partner of the 4th largest North American energy company. Core assets have been and currently remain a midstream master limited partnership. The general partner, in my opinion, is the dividend stock to invest in based upon the general partner Incentive Distribution Rights (IDR). The dividend was increased due to an 8.2% increase in year over year cash flow. The 2012 2nd quarter cash flow was $518 million compared to $478 million in 2011's 2nd quarter.
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KMI Total Return Price data by YCharts
Growth In Kinder Morgan Partners Spurs Rapid Growth In General Partner
One key IDR fact supports investors to buy shares of the general partner. Management highlighted the general partnership's profitability leverage based upon the Kinder Morgan Partnership's (KMP) success in increasing quarterly distributions.
The above Kinder Morgan general partnership dividend benefit truly levers a Kinder Morgan Partnership distribution hike. A 1% hike in the partnership distribution increases the general partner dividend by a levered percentage.
The 2012 second quarter revenue was $1.86 billion. This is 7.8% below the prior year's revenue of $2.02 billion. This is due, in part, of recent natural gas and natural gas liquids valuations decline.
For the quarter, Kinder Morgan lost $125 million, or 17 cents per share. This compares to earnings of 17 cents per share in the 2011 2nd quarter. This is due to writedowns from the $20 billion purchase of El Paso.
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KMI Net Income data by YCharts
Kinder Morgan's cash for dividends increased, year over year, by 83% to $307 million. A year ago cash available for dividends was $168 million.
El Paso Pipeline (EPB) Acquisition
The El Paso Pipeline has been a resounding success per the July 18th Kinder Morgan conference call. The 2 month old acquisition is part of the Kinder complex which increased cash flow by 8.26% to $518.00 million from the $478 million reported in the same period last year.
Kinder Morgan Partnership Distribution Increase
Management announced the partnership increased its quarterly distribution by 7%. The quarterly payment is $1.23 or an annualized $4.92 distribution. The 7% increase is reflected in a 17% Kinder Morgan general partner dividend hike. This matches the above September 21st excerpt of benefits in the Kinder Morgan general partner dividend.
Kinder Morgan Management LLC (KMR)
Kinder Morgan Management LLC shares are pari passu with Kinder Morgan Partnership units. The partnership unit holders receive distributions via cash. Kinder Morgan Management LLC receives their dividends in additional KMR shares.
Many investors prefer to not invest in a MLP due to legal, tax, or convenience reasons. The LLC dividends are pari passu with the partnership distributions.
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KMR Total Return Price data by YCharts
Enterprise Products Partners L.P. (EPD)
Enterprise Products Partners is a major midstream peer to Kinder Morgan. On July 11th, Enterprise Products increased their distributions for the 32nd consecutive quarter.
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Enterprise Products Partners new quarterly distribution is $0.6350 per common unit, or $2.54 per unit. The company provides midstream activities including transportation, storage, and processing.
Action
I own the general partner Kinder Morgan shares. I also own the Kinder Morgan 5 Year, $40 strike price, warrants. Approximately $110 million of the general partner 5 year, $40 strike price warrants were repurchased during the quarter. Management is clearly focused upon increasing quarterly dividends. Accretive acquisitions are always on the table for the Richard Kinder management team.
