The natural gas pipeline giant is an income-producing machine.
Investors interested in Kinder Morgan (KMI -0.64%) should make a note of April 30. It's an important date for those interested in receiving the natural gas giant's lucrative dividend.
Here's a closer look at why that date matters for dividend investors and what the longer-term future holds for the pipeline stock and its high-yielding dividend.
Payday is coming
Kinder Morgan recently declared its latest dividend. The natural gas infrastructure company will make its next quarterly dividend payment of $0.2875 per share on May 15. However, investors interested in receiving that dividend must be shareholders of record by market close on April 30. You don't need to do a thing if you already own shares; you'll automatically receive its next payment. On the other hand, if you've been considering investing in Kinder Morgan to start earning dividend income, you'd need to buy shares by the end of this month to receive its next payment. Otherwise, you won't see your first dividend payment until next quarter.
The company's upcoming dividend payment is noteworthy. Kinder Morgan recently increased its payout to an annualized rate of $1.15 per share, up about 2% from last year's rate. That's its seventh straight year of increasing the payment. With the stock recently trading at around $19 per share, Kinder Morgan's dividend yield is above 6%. That's significantly higher than the S&P 500 index's current yield of 1.4%. Put another way, every $1,000 invested into Kinder Morgan stock would generate more than $60 of annual dividend income, compared to around $14 for an S&P 500 index fund.
While you'd need to buy Kinder Morgan stock by the end of this month to receive its upcoming dividend, you don't need to rush out and buy shares if you're not ready. The company makes dividend payments every quarter, so there will be plenty more to come.
Plenty of fuel to keep paying dividends
Kinder Morgan should have no problem continuing to pay dividends. It generates very stable cash flow. Roughly 68% of its cash flow is from take-or-pay contracts or hedging agreements, meaning Kinder Morgan gets paid the full rate regardless of market conditions. Meanwhile, long-term, fee-based contracts back the bulk of its remaining cash flow. While they have some volume sensitivity, they limit its exposure to commodity price volatility. Those features drive Kinder Morgan's view that it will generate about $5 billion, or $2.62 per share, of distributable cash flow this year, up about 8% from last year.
With its dividend payment set at $1.15 per share, Kinder Morgan has a very conservative dividend payout ratio of around 51%. That will enable it to retain roughly half of its stable cash flow to fund expansion projects and maintain its strong balance sheet. The company expects to end the year with a 3.9 times leverage ratio, putting it toward the lower end of its 3.5x to 4.5x target range. That low leverage ratio gives Kinder Morgan the flexibility to opportunistically repurchase shares or make an acquisition.
The company also has a growing backlog of high-return expansion projects to grow its cash flow in the coming years. Kinder Morgan ended the first quarter with $3.3 billion of projects that should enter service over the next few years, a net $300 million increase from the end of last year. Meanwhile, the company sees plenty of expansion opportunities still ahead, fueled by growing demand for natural gas from catalysts like LNG and AI. It also has ample financial flexibility to continue making needle-moving acquisitions, like last year's $1.8 billion deal for STX Midstream. The company's growth-focused investments will increase its cash flow, giving it more fuel to continue raising its dividend payments.
An income stock for the long haul
Kinder Morgan will make its next dividend payment in May. While that means investors will need to own shares by the end of this month to collect that payment, there's really no rush. Kinder Morgan's stable cash flow, strong financial profile, and visible growth prospects suggest it should have the fuel to continue paying dividends for years to come. That makes it a great stock to buy for those seeking a long-term income stream.
Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
