Solid dividend growth
Kinder Morgan shareholders have received increasing returns from holding stocks through regular dividends. In the past nine quarters, its dividend increased 22% to $0.45 per share for 4Q14.
Kinder Morgan expects to increase dividends 15% in 2015 to $2.00 per share over the $1.74 per share dividend in 2014. The growth in 2015 will likely be driven by high demand for North American energy infrastructure due to higher natural gas production and Kinder Morgan’s various organic and acquisition-related expansions. Kinder Morgan’s services include transportation and storage of natural gas, NGLs (natural gas liquids), crude oil, and refined products.
Kinder Morgan’s 2015 budgeted EBDA (or earnings before depreciation & amortization) is ~85% fee-based, ~94% of which is hedged. Its backlog is largely insulated from oil price fluctuation due to long-term customer contracts and multi-year projects. However, its CO2 segment will stay exposed to commodity price sensitivity. The segment is covered by short-term contracts, which are affected by commodity price movements.
In 2015, the company expects to record $8.2 billion EBDA.
Commodity price sensitivity
Kinder Morgan’s (KMI) 2015 budget assumes a natural gas price of $3.80 per MMBtu and a WTI oil price of $70 per barrel. Each $0.10 per MMBtu change in the natural gas average price impacts the company’s distributable cash flow by ~$3 million.
Other major natural gas-heavy midstream operators like Williams Companies (WMB) and Spectra Energy (SE) will also be affected negatively if low natural gas price starts affecting production. KMI makes up 4.4% of the Energy Select Sector SPDR ETF (XLE) and 4.1% of the iShares US Energy ETF (IYE).
Natural gas price movement
Investors should keep in mind the long-term effect of natural gas price movement on natural gas volume.
In the past four years, natural gas prices have decreased ~44%. From January to December 2014, the price of natural gas decreased 20% and has kept falling in 2015 so far. The falling price acts as disincentives to the natural gas producers. If production is affected due to a depressed price, energy midstream operators like Kinder Morgan will be negatively affected. If energy prices stay far away from Kinder Morgan’s target, its DCF may face serious reductions, which could affect its stock price negatively.
Read the following section to find out about Kinder Morgan’s market performance and what to expect going forward.