Dividend joy at Kinder Morgan


Long-suffering Kinder Morgan (KMI) investors got some welcome news this week.

After nearly two years of reduced payouts, Kinder Morgan will be hiking its dividend next year. Kinder will be bumping its annual payout from $0.50 to $0.80 in 2018, and plans to push it to $1.25 per share by 2020.

 

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That amounts to a 60% increase next year and 25% annual growth for the two following years.

 

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Share Repurchase

KMI is also undertaking a $2 billion share repurchase, which is equal to about 5% of the company’s market cap at current prices.

And perhaps most importantly, in my opinion, Kinder expects to do all of this — along with funding new growth projects — with current cash flows and without having to tap into the debt markets.

 

Here are some details from the company’s press release:

“Importantly, these steps to return value to our shareholders will not come at the detriment of our balance sheet. In fact, we expect to continue to fund all growth capital through operating cash flows with no need for external funding for growth capital at KMI.”

 

Self-Funding

I’ve expected this for a while. Facing a hostile market and a prohibitively high cost of capital, Kinder opted to “self fund” its growth projects by slashing its dividend in late 2015.

In the nearly two years that have passed since, the company has added quality assets while also chipping away at its debt load.

Beyond 2020, KMI may never be the aggressive dividend-raising machine it was prior to its 2015 cut, but that’s ok in my view.

In my opinion, the newer, more conservative Kinder Morgan should remain a fantastic cash generator for yield-hungry investors.

Photo Credit: Pictures of Money via Flickr Creative Commons

Disclosures: Long KMI

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Charles Sizemore
Charles Sizemore
Sizemore Capital Management LLC is a registered investment advisory firm located in Dallas, Texas. Charles Lewis Sizemore, CFA is the founder and Chief Investment Officer of the firm.