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Dividend Growth Newsletter portfolio holding Kinder Morgan Partners (NYSE:KMP) reported excellent third quarter results Wednesday after the market close. Revenue grew 10% year-over-year to $2.3 billion, which was slightly better than consensus expectations. Net income per unit, when excluding special items, surged 30% year-over-year to $0.57, roughly in-line with consensus estimates. More importantly, distributable cash flow per unit grew nearly 8% year-over-year to $1.28, and the firm subsequently raised its distribution for the quarter to $1.26. Year-to-date, the firm has accumulated $3.72 per unit versus a payout of $3.69, leaving the company with $8 million of distribution coverage year-to-date. The firm continues to forecast an annual payout of $4.98 per unit, but it now expects to have some cushion, which it did not previously anticipate. We previously highlighted Kinder Morgan's excellent distribution prospects, and we encourage investors to read our piece wrote in July titled: "Why Kinder Morgan's Distribution Is Poised To Grow" -- click on title.

The Natural Gas Pipelines segment performed particularly well, as demand for natural gas surged 8% during the third quarter. Earnings in the segment surged 54% year-over-year to $383 million. We expect these trends to persist given low natural gas prices and the long-term shift away from coal in the US. Earnings in its Product Pipelines segment advanced just 4% year-over-year, to $185 million, as overall segment volumes dropped 3.5%. With gasoline prices nearing record highs during the quarter, demand for refined product was weak. Meanwhile, CO2, one of Kinder Morgan's stronger segments, saw earnings surge 16% year-over-year to $332 million, though the segment is running below its targeted earnings growth goals. Weak natural gas prices weighed on earnings, but strong oil production and pricing was able to mitigate some of the impact. The Terminals segment grew earnings 2% year-over-year to $184 million. While coal exports continue to surge, the domestic coal industry is noticeably weaker, erasing most gains related to exports. Sentiment regarding coal seems to be turning more positive, but we think the odds are still stacked against the domestic coal industry, which could weigh on profitability over the long term.

Perhaps more importantly, Kinder Morgan was able to divest assets acquired in its takeover of El Paso Pipeline Partners for proceeds of approximately $1.8 billion. The FTC had required these actions in order for the deal to meet regulatory approval. With the judge ruling against El Paso shareholders suing to stop the deal, we don't expect any further concerns related to the acquisition going forward. The company also issued $120 million in new units during the third quarter in order to increase liquidity.

With robust product-pipeline and natural-gas pipeline projects in the queue, Kinder Morgan is poised to continue to grow its distribution going forward. We like its juicy yield-about 5.8% at current levels-and an attractive "toll road" business model, and consequently, we own units in the portfolio of our Dividend Growth Newsletter. We think it is worth every penny, as we outline in this article here. Still, we'd wait for the firm's Valuentum Buying Index (our stock-selection methodology) score to improve before adding to our position.

Disclosure: I 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.

Additional disclosure: KMP is included in our Dividend Growth portfolio.

Source: Why We're Still Huge Fans Of Kinder Morgan