KMI Stock Shields Itself From So-So Earnings With Huge Dividend Hike

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Pipeline juggernaut Kinder Morgan (KMI) released its second-quarter earnings after the close on Wednesday, and the results were mixed.

KMI stock (primary), KMI, Kinder Morgan, Kinder Morgan earningsEarnings per share came in at 15 cents a share for the quarter. This is below analyst estimates of 19 cents, and down from the 27 cents KMI reported this time last year.

What’s more, revenues were down about 12% year-over-year.

Ouch.

But hold on. Why didn’t KMI stock sell off this morning on the cruddy announcement?

To start, Kinder Morgan cushioned the blow by raising its already impressive quarterly dividend by 14% YoY to 49 cents per share, and management said that they were on track to deliver a $2 full-year dividend by the end of the year.

At current prices, KMI’s dividend yield is a juicy 5.2%. That’s bound to draw investor attention, even if operational results were nothing to write home about.

Paying out 49 cents per share in dividends seems reckless when KMI stock only generates 15 cents for every share. But remember, as a capital-intensive pipeline operator, KMI has massive non-cash depreciation charges that tend to distort the numbers. And distributable cash flow — or the cash available to pay dividends — came in at 50 cents for the quarter.

Kinder Morgan has been a world-class dividend grower in recent years, and as part of last year’s reorganization, the company forecast dividend growth of at least 10% per year through 2020.

Operationally, the outlook for the company is brighter than the lousy quarter suggests. KMI reported that its project backlog jumped $3.7 billion to $22 billion. So, whether the price of crude oil goes up, down or sideways, Kinder Morgan is looking at solid built-in growth for years to come.

Kinder Has Faith in KMI – You Should Too

Any discussion of KMI stock should mention its outsized insider buying. Just last month, Chairman Richard Kinder spent around $8 million of his own money buying KMI stock. Those aren’t executive stock options either. They were open-market purchases paid for out of Mr. Kinder’s pocket.

He’s not alone either. Since 2014, company insiders have gobbled up a net 1.1 million shares worth $45 million at today’s prices.

Company insiders can sell their stock for any number of reasons. They might be diversifying … or possibly settling a tax bill. Or, for that matter, they could be buying an island in the Caribbean or splurging on a large diamond brooch for their mistress.

Basically, it’s hard to draw credible conclusions about a company’s prospects from insider selling alone.

But insider buying is a different beast entirely. There is only one reason why a company insider would pour their own money into their company stock — the belief that the stock is undervalued.

In KMI stock, we have a solid dividend grower with some of the most aggressive insider buying I’ve ever seen. Follow the lead of Mr. Kinder and his team and snap up the shares on any dips.

Charles Lewis Sizemore, CFA, is the chief investment officer of investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. Charles is long KMI. 

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/kmi-stock-kinder-morgan-kinder-morgan-earnings/.

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