Kinder Morgan Energy Partners, L.P. owns and manages energy transportation and storage assets in North America. Kinder Morgan is a dividend achiever as well as a component of the S&P 500 index. It has increased distributions for the past 13 years. For the past decade this dividend growth stock has delivered annualized total returns of 17.40 % to its shareholders.
At the same time company has managed to deliver an 14.20% average annual increase in its cash flow per unit since 1999.
The returns on assets have been very stable between 7% and 8% with the exception of 2007.
Annual distributions have increased by 12.10% on average over the past 10 years.
A 12% growth in distributions translates into the dividend payment doubling almost every six years. If we look at historical data, going as far back as 1993, we would see that Kinder Morgan has actually managed to double its dividend payment every five years on average.
The company has several projects worth $6 billion in its pipeline, which should add to incremental distributable cash flow per unit over the next few years.
Over the past decade the distribution payout ratio has been rather stable between 50% and 60%. For this company I used the ratio of current cash flow/unit to the annual distribution/unit. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The main risks for Kinder Morgan include increase in interest rates, which would increase the company’s borrowing costs to finance future projects and make its units less attractive to investors seeking its fat yield. Another risk could include adverse change in the legal structure of master limited partnerships, similar to what has happened to Canadian Royalty trusts. Thus investors should be careful not to have an overweight exposure to Kinder Morgan and Master Limited Partnerships in their portfolios. In addition to that as a mature MLP, the company distributes 50% of incremental cash flows to the general partner, which is higher in comparison to other pipeline operators.
Overall I think that Kinder Morgan is an attractive option for investors seeking current income as well as for those seeking future distribution growth as well. The company currently yields 7.50% and recently announced that it expects to raise its annual distributions to $4.40/unit from this year’s $4.20/unit. The company does have enough distributable cash flow to cover its distributions, in addition to having a stable toll booth type income streams from its pipeline operations.
There is an easy way to invest in Kinder Morgan (KMP) if you do not want to worry about K-1 tax forms. If you choose KMR they would pay their distributions directly as additional shares, which is similar to automatic dividend reinvestment. If you choose to invest in KMP in an IRA, consider investing in KMR . KMR is a great vehicle for taxable accounts as well since their distributions are not taxable when received, and thus shareholders are not issued an annual 1099 tax form. You would pay taxes only when you sell your units.
Full Disclosure: Long Kinder Morgan Energy
- Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors
- General vs Limited Partners in MLP's
- MLPs for tax-deferred accounts
- Six Dividend Stocks for current income
The S&P Dividend Aristocrats index is an elite group of companies, members of the S&P 500, which have managed to increase dividends ...
I just received notification that low cost broker Loyal3 is shutting down, effective May 22 2017. Loyal3 was a decent commission free alte...
In a previous article I discussed that I am on track to have my dividend income cover my expenses sometime around 2018 . I received a few qu...
As part of my monitoring process, I review the list of dividend increases every week. I usually focus my attention to companies that have r...
Last week, I shared the 2017 list of dividend aristocrats . The most common question I received focused on which companies are attractively ...
I look at the list of dividend increases every week, as part of my monitoring process. I then narrow the scope by focusing on companies tha...
This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blo...
People usually get emotional when the topic of rent versus buy is brought up. One group swears by owning a home, and believes that it is a g...
The Procter & Gamble Company (PG) provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, Ind...
Raytheon Company (RTN) develops technologically integrated products, services, and solutions worldwide. It operates through five segments: I...