Exploring Options for Steadfast Passive Income? Consider This Dividend Stock Offering a 4.3% Return.
A high dividend yield might sometimes hint at a higher risk profile. However, that's not always the case, as evident with Kinder Morgan's (KMI -0.68%) high-yield dividend. This natural gas pipeline giant stands out due to its robust financial profile, ensuring its 4.3%-yielding payout remains secure.
The Fortress of Financial Stability
Kinder Morgan boasts an unmatched portfolio of energy infrastructure assets, such as pipelines, processing plants, and storage terminals. Over 64% of its cash flow derives from take-or-pay agreements, which secures a fee regardless of the customer's usage. Moreover, some 5% of its cash flow is cushioned by hedging contracts that stabilize commodity prices. These components account for 71% of the company's financial security, providing a cushion against market downturns.
An additional 26% stem from fee-based contracts with guaranteed revenues from the midstream network. The consistently effortless 5% of its earnings are unhedged, subject to fluctuating volumes and pricing variations. Although it's essential to keep track of these unhedged earnings, Kinder Morgan's financial arrangements provide an extraordinary amount of visibility, ensuring predictability in its cash flow.
For 2023, the company anticipates generating over $5.9 billion in cash flow from operations, an impressive $300 million uptick from the prior year. Furthermore, the capital expenditures and expected dividend payments are covered, leaving $150 million in excess free cash flow. This impressive financial health is backed by a strong investment-grade-rated balance sheet, projected to end this year with a 3.8 times leverage ratio, a decrease from 4.0 times in 2022.
However, Kinder Morgan's financial prowess doesn't end here. Its $640 million accretive acquisition of a natural gas gathering and processing system in North Dakota, scheduled for the first quarter, will elevate its cash flow while moderately impacting its leverage ratio.
Expanding the Sources of Stable Cash Flow
Kinder Morgan's financial capacity empowers it to capitalize on opportunities to grow within the U.S. energy midstream sector. The company plans to invest $2.3 billion in growth capital projects this year, a noticeable increase from $1.9 billion in 2022. Kinder Morgan has secured three major natural gas pipeline projects recently, boosting its project backlog to $8.1 billion.
This construction surge is set to continue, with several more projects slated to commence operations through the 2030s, generating significant future growth once operational. Kinder Morgan's executives anticipate expansion potential, fueled by surging natural gas demand and emerging sectors like AI data centers. This motivation bolsters the company's belief in securing additional growth-capital projects.
A Low-Risk, High-Yield Investment Opportunity
Kinder Morgan exemplifies a reliable dividend stock. Its steady cash flow is ample enough to settle dividend payments while financing expansion projects and maintaining a solid balance sheet. This strong financial position ensures that investors can bank on Kinder Morgan's high-yielding dividend consistently.
Moreover, the pipeline giant's payout is poised for growth, boasting an impressive 25-year track record of annual dividend hikes, with a 15% increase in 2024 and steady support from underlying earnings growth. In a nutshell, Kinder Morgan is a desirable option for income-oriented investors seeking reliable returns and exciting growth opportunities.
- Investors interested in low-risk, high-yield opportunities might consider investing in Kinder Morgan, given its robust financial profile and consistent dividend hikes.
- The finance department at Morgan has been instrumental in refining Kinder Morgan's risk management strategies, ensuring a balance between its high dividend yield and financial stability.
- When considering Kinder Morgan as an investment, it's essential to analyze not only its high-yielding dividend but also its diversified sources of stable cash flow, such as take-or-pay agreements and fee-based contracts.
- Despite the risk associated with unhedged earnings, Kinder Morgan's financial arrangements provide predictability and visibility, reducing the overall investment risk for those interested in financing.
