Kinder Morgan (NYSE: KMI) is one of the more popular pipeline companies with investors.
The stock pays a $0.25 per share quarterly dividend, which comes out to a 5% yield.
Kinder Morgan has 84,000 miles of oil and gas pipelines and 157 terminals.
The company generates plenty of cash flow. Cash available for distribution (CAD) is the measure of cash flow used by pipeline companies, and Kinder Morgan’s CAD has been growing over the past few years, albeit slowly.
In 2019 and 2020, CAD is forecast to grow 3% each year. It is forecast to be $4.87 billion this year and $5.03 billion in 2020.
That’s more than enough to pay the projected dividends of $2.15 billion in 2019 and $2.85 billion in 2020.
So cash flow isn’t a problem. What does concern me, though, is the company’s track record.
When the oil industry ran into trouble in 2016, the company slashed the dividend. It’s still 48% below where it was in 2015.
Sometimes a dividend cut is necessary when cash flow won’t support the payout. But a company that lowers the dividend is likely to do it again when times get tough.
Companies with long track records of sustained or growing dividends, on the other hand, typically find a way to continue to pay the dividend even during downturns.
Additionally, Kinder Morgan’s debt level is quite high. Its debt is more than four times its EBITDA (earnings before interest, taxes, depreciation and amortization).
That makes it more difficult for the company to sustain the dividend when cash flow decreases because interest payments eat up a meaningful portion of earnings.
I don’t expect Kinder Morgan to cut the dividend in the near future. But the next time cash flow slips, it wouldn’t shock me if the company does in fact reduce the payout to shareholders like it did before.
Dividend Safety Rating: C
If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.
[adzerk-get-ad zone="245143" size="4"]About Marc Lichtenfeld
Marc Lichtenfeld is the Chief Income Strategist of Investment U’s publisher, The Oxford Club. He has more than three decades of experience in the market and a dedicated following of more than 500,000 investors.
After getting his start on the trading desk at Carlin Equities, he moved over to Avalon Research Group as a senior analyst. Over the years, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report, among other outlets. Prior to joining The Oxford Club, he was a senior columnist at Jim Cramer’s TheStreet. Today, he is a sought-after media guest who has appeared on CNBC, Fox Business and Yahoo Finance.
Marc shares his financial advice via The Oxford Club’s free daily e-letter called Wealthy Retirement and a monthly, income-focused newsletter called The Oxford Income Letter. He also runs four subscription-based trading services: Technical Pattern Profits, Lightning Trend Trader, Oxford Bond Advantage and Predictive Profits.
His first book, Get Rich with Dividends: A Proven System for Earning Double-Digit Returns, achieved bestseller status shortly after its release in 2012, and the second edition was named the 2018 Book of the Year by the Institute for Financial Literacy. It has been published in four languages. In early 2018, Marc released his second book, You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners, which hit No. 1 on Amazon’s bestseller list. It was named the 2019 Book of the Year by the Institute for Financial Literacy.
