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How Kinder Morgan Is Covering Dividend Increases

Dec. 06, 2018 5:33 AM ETKinder Morgan, Inc. (KMI)80 Comments
Callum Turcan profile picture
Callum Turcan


  • Kinder Morgan recently released guidance for 2019.
  • The company plans to allocate more capital towards growing its asset base and boosting its dividend payments, all while still living within its means (more or less).
  • Rising cash flow generation makes this possible.
  • Divestment proceeds are going towards debt reduction instead of share buybacks.
  • The planned dividend increase in 2019 will push the yield on Kinder Morgan's shares up to 6%.

Kinder Morgan, Inc. (NYSE:NYSE:KMI) was one of the first giants of the oil & gas industry to release financial guidance for 2019. The company remains committed to raising its per share dividend by 25% to $1 in the first quarter of 2019, and management has a strategy to make that fiscally possible. Readers should note that will boost the yield on shares of Kinder Morgan up to 6% from 4.8% as of this writing. Let's dig in.

Evaluating Kinder Morgan's expected cash flow position

Management estimates that Kinder Morgan will generate $5.0 billion in distributable cash flow next year, up almost 10% from the $4.6 billion in DCF the company is forecasting for 2018. The midstream giant's growth-related capital expenditure budget is set to rise by 24% to $3.1 billion next year, up materially from its 2018 budget of $2.5 billion. Note Kinder Morgan increased its 2018 capex budget by $0.3 billion from its original forecast in light of the ongoing boom in American energy production.

Before taking share buybacks and after taking the expected payout increase into account, Kinder Morgan will spend roughly $1.9 billion next year on its dividends. The company also spends $0.2 billion per year covering its preferred dividends.

Distributable cash flow shouldn't be confused with free cash flow. DCF is a non-GAAP figure that is derived by taking Kinder Morgan's net income, adding back non-cash charges and adjusting for various other effects (DD&A is the biggest factor here, followed by differences in book taxes versus cash taxes), and then subtracting sustaining capital expenditures from that figure.

Sustaining capex is not considered a part of Kinder Morgan's growth capex budget. Based on its performance during the first three quarters of 2018, it appears Kinder Morgan is projected to spend around $0.6 billion this year on sustaining capex.

This article was written by

Callum Turcan profile picture
Worked as an equity analyst for several years in the USA and have been writing financial articles and analyzing publicly traded companies for more than a decade.

Analyst’s 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.

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