Pipelines and midstream energy firms are supposed to be boring investments. And historically, energy logistics giant Kinder Morgan (KMI) has fit into that camp. That is, until analysts at Hedgeye Risk Management began to question the company’s — and its subsidiaries Kinder Morgan Energy Partners’ (KMP) and El Paso Pipeline Partners’ (EPB) — cash flows, CAPEX spending and incentive distribution rights (IDRs).
Well, as they say “time heals all wounds,” and for KMI stock that seems to be coming true. The pipeline firm’s last earnings report was nothing but stellar, and the key cash flow metrics showed vast improvement. All in all, you have to wonder if Hedgeye’s concerns were a bit blown out of the water.
For KMI stock investors, the latest earnings once again proved it’s one of the best midstream firms and showed why KMI deserves a place in your income portfolio.
Higher Distributable Cash Flows
After Hedgeye issued its report back in September on KMP & KMI stock, the key for investors has been the tale of Kinder Morgan’s cash flows and dividends. Well, KMI stock now has two consecutive quarters of solid cash flows (plus year-end numbers) to counter Hedgeye’s concerns.
KMI has a vast network of pipelines and terminals totaling roughly 82,000 miles, which continues to rack up big transportation fees. The key for those steady and rising fees has been KMI’s focus on natural gas. Seeing the writing on the wall early on, Kinder Morgan made strategic buys of El Paso and Copano and expanded the number of natural gas midstream assets in its network.
Those natural gas pipelines have been a monster source of earnings. For the fourth quarter, KMP’s natural gas segment grew roughly 40% on a year-over-year basis, while EPB saw similar gains along its network of natural gas assets in the west. All of which benefits KMI shareholders in the end.
So, what’s strengthening that relationship?