Kinder Morgan’s dividend guidance
Kinder Morgan (KMI), the midstream energy giant, announced a ~75% quarterly dividend cut in its annual outlook release for 2016 on Tuesday, December 8. KMI suggested a dividend cut in a press release regarding 2016 financial expectations published on Friday, December 4. Before this announcement, KMI lowered its 2016 dividend growth guidance to 6%–10% in its third quarter earnings release.
In the recent press release, KMI announced that its board has agreed to pay a quarterly dividend of $0.13 per share for the fourth quarter of 2015 versus $0.51 in the third quarter of 2015. According to the press release, “KMI expects to declare dividends of $.50 per share for 2016 and use excess cash to fund growth investments”
KMI shares fell 4.3% on Tuesday before the announcement while the sell-off continued in after-hours trading. It lost another 7.9% in after-hours trading. Until Tuesday, December 8, KMI lost ~63% of its equity value since the beginning of this year.
At the same time, KMI’s MLP (master limited partnership) peers, Williams Partners (WPZ), Energy Transfer Partners (ETP), and EnLink Midstream Partners (ENLK), have lost -54.8%, -48.7%, and -55.4%, respectively. The Alerian MLP ETF (AMLP), which comprises 22 midstream energy MLPs, has come down 40.4%.
Kinder Morgan expects to generate over $5 billion of distributable cash flow in 2016 and expects to use the cash left over after quarterly dividends to fund the equity portion of its expansion capital.
According to Rich Kinder, KMI’s executive chairman, “It will allow us to continue to maintain and grow our outstanding set of midstream energy assets without being required to issue equity at valuations prevalent in today’s market while maintaining a solid investment grade rating on our debt obligations. We are directly addressing concerns about our investment grade rating and concerns about the need to issue additional equity. We believe today’s action is beneficial to our shareholders.”