Kinder Morgan Inc. KMI affirmed its 2016 financial outlook. Per the company, 2016 growth range is expected at 6–10% over its 2015 target dividend of $2.00 per share. The company also expects 2016 distributable cash flow to be slightly over $5 billion.
Kinder Morgan is the largest energy infrastructure company in North America. It owns an interest in or operates approximately 84,000 miles of pipelines and approximately 165 terminals. The company’s pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals, and handle bulk materials like coal and petroleum coke. Kinder Morgan is the largest midstream and third largest energy company in North America.
But like all other oil and gas majors, Kinder Morgan remains vulnerable to volatile crude oil and natural gas prices, an imbalance between supply and demand for its products, and rising interest rates. Such factors can hurt the company’s volumes and margins.
Moreover, Kinder Morgan’s distribution growth prospects are closely linked to the successful completion of organic growth projects, which in turn might be affected by operational hindrance, cost inflation and overruns, and delays in completion.
Additionally, although Kinder Morgan possesses solid cash flow stability from quality pipeline and storage assets, we believe that higher gasoline and feedstock prices will marginally increase the risk profile of its refined product pipeline assets. Even with its diversified set of assets, Kinder Morgan has little exposure to the shale oil infrastructure. Also, Kinder Morgan’s recent purchases like a stake in Continental Resources Inc.’s CLR Bakken pipelines were deemed as unreasonably increasing debt pressure on its dividend.
Nonetheless, the company’s strong fundamentals have been exhibited through its continued increase in distributable cash flow throughout 2015, 22% year over year to be precise. This is impressive given the challenges faced by the company due to its completely commodity centric business.
Moreover, investors have tremendous faith in the company’s management as it has shown credibility and foresight in its operations. Therefore, its decision to buy new businesses cannot be called faulty. It is management’s efficiency that has helped Kinder Morgan become one of the three largest pipeline companies in the U.S.
In view of the above discussion, supporting dividend for two more years even without any increase in oil and natural gas prices is not likely to be a major issue for the company.
Kinder Morgan carries a Zacks Rank #3 (Hold). Some better-ranked players from the broader energy sector are Energy Transfer Equity, L.P. ETE and Boardwalk Pipeline Partners, LP BWP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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