Kinder Morgan Inc (KMI) — This owner of the general partners of Kinder Morgan Energy Partners and El Paso Pipeline Partners is one of the largest energy companies in the United States. Late last year, the company completed a plan to consolidate its three master-limited partnerships in a cash and stock deal totaling $71 billion.
Management said this was done to eliminate payments of incentive rights to KMI and give them the ability to generate dividends of $2 per share in 2015. They also believe they can grow the dividend by 10% to $2.20 through 2020.
Capital IQ notes the consolidation should give Kinder Morgan the benefit of scale, such as the “ability to more easily adapt to shifting sources of unconventional energy supply.”
On Monday, the Obama administration announced a plan to aggressively cut carbon emissions from the country’s coal-burning power plants. This should force utilities to consider other fuel sources. Natural gas, which is cheap and has low emissions, would make a reasonable alternative, and this could benefit natural gas pipeline operators like Kinder Morgan.
Capital IQ recently upgraded its opinion of KMI stock to “buy” from “hold.” Its price target of $45 is 13.7 times the forward cash flow multiple. Its analysts also noted the backlog of $22 billion at the end of June was up 20% from the previous three months.
KMI stock rose from a low just above $33 in October to a high just below $45 in April. Since then, shares have fallen roughly 25%, hitting a low of $33.45 on Tuesday.
However, the daily chart doesn’t reflect the reason to consider KMI stock now. Rather, the monthly chart clearly indicates that this natural gas transporter is close to a four-year average bottom.
Buy KMI stock as an intermediate-term investment with a 12-month target of $45 for a gain of $34%, plus a dividend yield of almost 6%.
Disclosure: Sam Collins own shares of KMI.