Kinder Morgan Energy Partners L.P (KMP) is a Master Limited Partnership and the largest independent owner and operator of petroleum product pipelines in the U.S., transporting more than two million barrels per day of gasoline, jet fuel, diesel fuel, and natural gas liquids. The partnership divides its operations in different business segments, with its top three being:
- CO2 & Oil Production 30.4%
- Natural Gas Pipelines 27.5%
- Terminals 20.8%
There are a couple of very inviting points that make investing in this company very appealing. First of all, in an environment that caters to high dividend stocks, this company tips the scales at 5.8%. The company's general partner cash flow should drive double-digit dividend growth from a higher proportion of stable, fee-based natural gas pipeline assets. It will continue to grow for years to come with no material commodity exposure.
Take a look at some recent business alliances that the company has made that will keep business flowing.
Long-Term Agreement with BP
Kinder Morgan and BP teamed up to allow Kinder to provide BP p.l.c. (BP) with condensate processing services and storage at the company's terminals in the Houston shipping Channel. BP will commit 40,000 (BPD) through Kinder's facility allowing various components like light and heavy naphthas, kerosene, and gas oil. In addition, BP will lease about 750,000 barrels of storage space that Kinder Morgan will build at its Galena Park Terminal. About five new tanks will be built here connecting its condensate facility, new piping, manifolds and pumps. This will all be up and running by the first half of 2014.
Kinder Morgan Energy Partners may find another revenue stream from the decline in the demand for domestic coal. Coal companies are looking to export more and more and Kinder Morgan will be able to profit because of this. It could build terminals in the Gulf to handle it. Considering that the terminal business is 20% value to its stock price, this is a good strategy. Right now, the West Coast is embattled by environmental groups making it hard to expand ports. As a result, coal companies are forced to use the Gulf coast for export activities.
Kinder Morgan Energy Partners has been proactive in developing coal handling facilities and the growing Asian populations fall right into its visions. In January 2012, the company announced a $140-million investment expanding its export facilities in the Gulf. It built a business alliance with Arch Coal (ACI) to ship coal using its terminals, while it increases capacity at the terminals. It should be able to handle about 8 million tons annually. Since thermal coal is growing in interest in Asia, it has been about 40% of all U.S. coal exports. For this reason Kinder is well positioned to capitalize on the increases if it can handle them.
Agreement with Peabody Energy
Peabody Energy Corporation (BTU) and Kinder Morgan are going to be working together long term as another benefit to the expansion of the latter's Gulf exporting platforms. Peabody will utilize the Houston and Myrtle Grove, LA deep water terminals to export between 5 million and 7 million tons of coal per year. When all the expansion work is complete, the company will have the ability to export 27 million short tons per year.
Kinder Morgan Energy Partners is a strong growing stock with a very healthy dividend that I believe all long-term investors should take a serious look at for their portfolios. It has good business deals in its pipeline and activity that will continue to bring revenue in through its doors.