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KMI’s Dividends: Key Drivers

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What drove the revenue?

Kinder Morgan (KMI) is an energy infrastructure company in North America. Its revenue fell 9% in 2016 before growing 5% in 2017. The drop in 2016 was due to lower revenue from natural gas sales, services, and product sales. The decline in revenue from the Natural Gas Pipelines, CO2, Product Pipelines, and Kinder Morgan Canada segments in 2016 was offset by Terminals. Every segment recorded growth in 2017.

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What led to the flat EPS?

Thr cost of sales fell 15% in 2016 before increasing 24% in 2017. As a result, gross profit fell 7% and 2% in 2016 and 2017, respectively. Operating costs and expenses fell 24% and 3% in 2016 and 2017, respectively, due to lower asset impairment and divestiture in 2016 and insignificant asset impairment and divestiture in 2017. This fall led to 46% growth in operating income for 2016 and a 1% fall in 2017. Interest expenses fell 12% in 2016 and rose 1% in 2017. Impairment on investments increased in 2016 before falling in 2017, which translated into a fall of 8% in adjusted earnings and EPS (earnings per share) for 2016. Adjusted earnings and EPS remained flat in 2017.

Dividend yield and price performance

The dividend yield for Kinder Morgan has fallen materially in 2016 and grown slightly in 2017 due to a significant dividend cut in 2016, followed by flat dividend growth in 2017. The 2016 dividend yield was further affected by higher price gains, unlike in 2017. The company generated enough free cash flow in 2016 to cover its dividend payments.

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Drivers

The company consummated the Elba Liquefaction Project joint venture and IPO of its Canadian pipelines and terminal assets. The year included the placement of various projects into service.

Stacking up against the broad indexes

A PE of 1491.3x and a dividend yield of 2.8% compares to a sector average PE (price-to-earnings ratio) and a dividend yield of 775.2x and 6.7%, respectively. The SPDR S&P 500 ETF (SPY) has a PE of 18.7x and a dividend yield of 1.7%. The SPDR Dow Jones Industrial Average ETF (DIA) has a PE of 17.8x and a dividend yield of 1.9%.

Dividend ETFs with exposure to Kinder Morgan

The WisdomTree US Dividend ex-Financials Fund (DTN) has a PE of 19.6x and a dividend yield of 3%. The WisdomTree US High Dividend Fund (DHS) has a PE of 21x and a dividend yield of 3%.

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