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Kinder Morgan - Increasing Dividends In A Downturn

May 06, 2020 10:56 AM ETKinder Morgan, Inc. (KMI)27 Comments


  • Kinder Morgan has an impressive portfolio of assets. Despite COVID-19 difficulties, its cash reductions more than account for that.
  • Kinder Morgan's capital program has the potential to more than cover the company's COVID-19 losses. That should help the company recover even faster.
  • I recommend investors, potentially with options, invest in Kinder Morgan for the long run.
  • I do much more than just articles at The Energy Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Kinder Morgan (NYSE: NYSE:KMI) is one of the largest publicly traded midstream companies, with a market capitalization of more than $30 billion. The company has a dividend of more than 7%, and is one of the few companies, let alone companies in the oil patch, to have increased its dividend since COVID-19 began. As we’ll see throughout this article, the company’s impressive asset portfolio, comfortable ability to weather the downturn, and cash flow make it a solid investment.

Kinder Morgan - Kinder Morgan

Kinder Morgan Asset Overview

Kinder Morgan has an impressive portfolio of assets that support its core businesses and earnings potential.

Kinder Morgan Assets - Kinder Morgan Investor Presentation

Kinder Morgan has ~70 thousand miles of natural gas pipelines, with a massive storage capacity capable of holding billions of dollars of natural gas. At a time when all storage is trading at a premium, the company’s storage is something that can help isolate it from the other effects of COVID-19. The company is also a significant transporter of refined products and one of the largest independent terminal operators.

Overall, the company has an impressive portfolio of oil and natural gas assets balanced out across the different components of the market.

Kinder Morgan COVID-19 Effects

Kinder Morgan has been working hard to handle the effects of COVID-19.

Kinder Morgan COVID-19 Results - Kinder Morgan Investor Presentation

Kinder Morgan is forecasting $7 billion in 2020 adjusted EBITDA, an 8% decline YoY. That will result in the company’s distributable cash flow dropping to $4.6 billion or a 10% YoY decline. Both of these declines are incredibly significant for a company like Kinder Morgan. However, they are also much better than the declines many other companies will experience.

Kinder Morgan has chosen to respond by not increasing its dividend as much as

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This article was written by

The Value Portfolio profile picture

The Value Portfolio specializes in building retirement portfolios and utilizes a fact-based research strategy to identify investments. This includes extensive readings of 10Ks, analyst commentary, market reports, and investor presentations. He invests real money in the stocks he recommends.

He is the leader of the investing group The Retirement Forum with features including: model portfolios, macro overviews, in-depth company analysis and retirement planning information. Learn more.

Analyst’s Disclosure: I am/we are long KMI. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (27)

reutthe profile picture
I’ve been selling cash secured puts every month equal or better than the quarterly dividend. I’ve been doing this since the price cratered from $21. I’m long 1500 shares in another account so I believe in the company, just making some easy cash while the price recovers!
arlene2007 profile picture
Green energy is ok for a house but manufacturing requires REAL power.
I am sure that KMI has storage tanks at each of their terminals and storage in those tanks must now be selling at a monthly premium!
Zucks profile picture
Anyone carefully reading your article should realize that this is a well managed company. There is a difference between “Kindering” and reacting to dramatic drops in the market. 
Natural gas is the important bridge between today and the green energy of tomorrow. One could write either that the efficiency of solar cells is now 22% or the efficiency of solar cells is only 22%, but it is an advance from 12% say a decade ago. Economical storage is the goal of many researchers. (Little Sweden may become a power house in the future due to the amount of research in all facets of green energy.) Thevpoint is that in the interim natural gas will be in high demand, particularly abroad. For this reason there is more competition as other nations are are exporting LNG. However, what many do not realize is that some believe the real debate is not competition, but will we run out of natural gas, or not! Maybe, as existing supply decreased advanced more expensive exploration and extraction techniques may allow continued supplies but at a higher cost. As one blogger wrote at some point the higher cost of natural gas versus the lowered cost of renewables will “flip” the markets for everyday uses.
Your concise article clearly gives many reasons why I expect to hold KIM for, say, five years or so, but not being blind to the trends outlined above, I expect to consider to start selling energy stocks about that time, unless my estate sells everything before then.
crrj profile picture
Seems to be many other risks--that if navigated, can provide true launch.

If the drillers going bankrupt don't hurt their income-
If renewable energy push is disclosed as the fraud it is
If Trump is re-elected they win--if not---doubtful much will help
If China is forced to purchase US LNG to help reduce the massive trade deficits
If economic activity increases into 4th quarter, Trump wins, and kmi can raise the remainder of 25% dividend planned.

Lots of if's---but seems, many PE firms are buying midstream assets----that's good because they buy many politicians who can help the nat gas cause.
AFAHM profile picture
There is reasonable logic to selling the "Cash Secured Jan. 21 Puts". However, this takes a certain kind of investor.

The kind of investor that can set aside the "Cash securing the Put" and not drive themselves nuts looking at the stock price between now and Jan. 21, 2021. I envy the person that can do that! A month, to 6 weeks, is about it for me, then I gotta know if I won or lost!
ephud profile picture
Why go out that far? Why not just sell near term and put a few bucks in your pocket?
bmpire profile picture
Agreed; the other issue with long dated cash puts is when the price actually drops to or below your strike price, you would normally buy buy now you can’t load the truck because you have puts that are now in the money and a ways out. Shorter expirations work better so you don’t miss your buying opportunity
It is still way lower than what it was pre KINDERing
where was xom at that time?
My "dividend" was a return of my principal. These mid stream companies are a scam in my opinion.
smurf profile picture
I think that KMI is fine, with the adult supervision they have now, Rich being kicked upstairs as kind of a senior advisor. I don't ascribe to the devil incarnate mantle some would place on him. Remember, he built the company from nothing, but it got too big too fast and out of control because he had too much of a cowboy/wildcatter mentality.

Sold KMI at $21, not adverse to reinvesting, but would wait for a lower entry point.
ephud profile picture

Why not write Puts?
The Value Portfolio profile picture
He got too confident for sure in terms of the liquidity of the equity markets - but people make mistakes and he seems to have learned his lesson
The Value Portfolio profile picture

writing puts is a great strategy
Wurlitzer profile picture
Typo - vaccine potential availability in 2020, not 2018
WARRENWATT profile picture
That's nor a sure thing yet, viruses mutate and I think this will be a long world war rather than a great American victory. Look at the flue and the common cold, much more benign strains and they still cause casualties. I hope I'm wrong.
ephud profile picture
Where are the Kindered whiners?
David Jensen, CFA profile picture
Write it and they will come...
David.options.2021 profile picture
They are still out there. Soon you will be reading. 'I got screwed 5 years ago, etc. etc'
I got screwed 5 years ago. ....
We were in love.
And now we're married. 😀
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