Kinder Morgan’s 2016 dividend guidance
Kinder Morgan (KMI) decided to slash its quarterly dividend by 75% in the 2016 outlook it released few days ago. Before this, KMI lowered its 2016 dividend growth guidance to 6%–10%. Compare this to the 10% annual dividend growth target from 2016 through 2020 that the company had announced during its consolidation transaction in 2014. According to the outlook, KMI declared a quarterly dividend of $0.13 per share for 4Q15 and for the whole of 2016.
Kinder Morgan expects to generate over $5 billion of distributable cash flow in 2016. It expects to use the cash left over after quarterly dividends and preferred dividends to fund the equity portion of its expansion capital.
Kinder Morgan’s project backlog and 2016 Capex
Kinder Morgan also decided to reduce its 2016 capital budget to $3.3 billion—a decrease of $900 million compared to its previous 2016 guidance. Plus, KMI lowered its project backlog by $3.1 billion compared to the third quarter. The majority cut is expected in KMI’s CO2 segment, which is most exposed to crude oil prices.
On this topic, Steven Kean, KMI’s CFO, said, “We also worked hard this last quarter on securing our investment grade debt metrics for 2016 and beyond and ensuring that we can continue to invest in high-quality opportunities that allow us to grow value per share. We high graded our backlog to focus on the highest return opportunities. We’re aiming to reduce spend, improve returns and selectively joint venture projects where appropriate.”
Other midstream companies, such as Boardwalk Pipeline Partners (BWP), Teekay Offshore Partners (TOO), and Plains All American Pipelines (PAA), have turned to similar measures over the last year to reduce leverage and funding requirements in this challenging environment. KMI forms 0.26% of the iShares Russell 1000 Value ETF (IWD) and 6.7% of the MLP and Energy Infrastructure ETF (MLPX).