KMI’s distributable cash flows
For 2017, Kinder Morgan (KMI) reported DCF (distributable cash flow) of ~$4.48 billion versus ~$4.51 million for 2016. The marginal fall in KMI’s 2017 distributable cash flow was primarily attributable to lower contributions from SNG (Southern Natural Gas), the adverse impact of Hurricane Harvey, and the initial public offering of Kinder Morgan Canada Limited (KML.TO). KMI sold its 50.0% interest in SNG in September 2016.
The chart above shows KMI’s DCF and per-share dividend over the last six years. It also shows the company’s expected DCF and dividends for 2018, based on its guidance.
KMI’s expected 2018 DCF
Kinder Morgan expects to generate $4.6 billion of distributable cash flow for 2018, which is 2.0% higher than its 2017 DCF. Kinder Morgan expects to generate additional cash flows over the next few years as its capital projects are placed in service.
Cash flow stability
Nearly 90.0% of Kinder Morgan’s (KMI) 2018 cash flow is expected to be fee-based and 96.0% is fee-based or hedged.
Nearly 66% of KMI’s fee-based cash flow is expected to come from take-or-pay contracts, which is highly dependant on cash flow. Such contracts require the buyer to either take the product from the supplier such as KMI here or pay a specified penalty.
About 24.0% is expected to be other fee-based cash flow. Only 4.0% of the 2018 budgeted cash flow is commodity-based.
Kinder Morgan (KMI) expects to increase its dividends by 60.0% to $0.80 per share for 2018. Kinder Morgan is trading at a yield of ~3.1%. That yield is lower compared to ~6.5% for Enterprise Products Partners (EPD), 5.7% for Magellan Midstream Partners (MMP), or 5.2% for Plains All American Pipeline (PAA).
At the current price, Kinder Morgan’s yield could rise to ~4.8% if it increases its dividends as planned.