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Why Kinder Morgan Underperformed the Alerian MLP ETF


Jan. 18 2016, Updated 11:06 a.m. ET

Kinder Morgan’s market performance

Kinder Morgan (KMI) has lost 66.3% of its market value during the past year. KMI’s peers, Energy Transfer Partners (ETP), EnLink Midstream Partners (ENLK), and DCP Midstream Partners (DPM) have lost 57.1%, 54.6%, and 48.9%, respectively, during the same timeframe. The Alerian MLP ETF (AMLP), which comprises of 22 midstream energy MLPs (master limited partnerships), has fallen by 38.9%, indicating a general weakness in the midstream sector.

However, Kinder Morgan has underperformed AMLP by a huge margin of 27.4 percentage points. KMI’s underperformance relative to AMLP can be attributed to its higher commodity price exposure, lower dividends (dividend cuts), and higher leverage compared to some of AMLP’s constituents.

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Kinder Morgan’s dividend guidance

Kinder Morgan sent jitters to the entire midstream sector when it announced a 75% quarterly dividend cut in its annual outlook release for 2016. Before this, KMI lowered its 2016 dividend growth guidance to 6%-10% in its third quarter earnings 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. For more detail, read Kinder Morgan Slashes Dividend by 75%: Key Highlights.

Kinder Morgan expects to use the internally generated distributable cash flow for funding the equity portion of its expansion capital. This is expected to bring down KMI’s leverage in the long run.

Kinder Morgan’s dividend yield

Kinder Morgan is currently trading at a dividend yield of 3.6% based on its 4Q15 dividend of $0.13 per unit or $0.5 on an annualized basis. This is quite low compared to KMI’s dividend yield of 12.9% before the dividend cut announcement. KMI doesn’t seem to be an attractive opportunity for income investors, as its dividend is expected to stay flat for the rest of 2016.


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