Energy sector giant Kinder Morgan (NYSE:KMI) is known for its extensive network of pipelines – around 83,000 miles of oil and natural gas pipelines, if you can even imagine that. Moreover, Kinder Morgan is the S&P 500‘s largest energy infrastructure firm. So, you’d think that KMI stock should be in high demand, right?
Interestingly, that’s not the case at all. Sure, the daily trading volume on KMI stock is typically in the millions of shares. Nevertheless, much of that trading volume consists of heavy selling.
In other words, KMI stock is not in favor at the moment. We can blame the onset of the novel coronavirus for the price decline, but that doesn’t tell the full story. Plenty of stocks have recovered from the Covid-19 crash, but KMI just can’t seem to get off the ground.
Contrarians and income-focused investors really ought to give KMI stock a chance. Whether you own it for the yield or the company’s project-level progress, KMI’s well worth considering for a long-term position.
A Closer Look at KMI Stock
Let’s not beat around the bush. If you’re a yield seeker, KMI should whet your appetite. Currently, it offers a forward annual dividend yield of 8.19%.
Even in a market sector that’s known for offering solid dividend payouts, KMI’s yield is quite generous. Personally, I consider it a sign of respect when companies like Kinder Morgan choose to reward their loyal long-term shareholders in this way.
As for the price of KMI stock, value investors should be glad to know that it’s much closer to its 52-week low of $9.42 than its 52-week high of $22.58.
Moreover, KMI stock performed fairly well in April, a month when the oil price collapsed. Thus, we can conclude that the price of KMI isn’t wholly dependent on energy prices. It should be comforting to know that the stock and the company can withstand oil-price shocks when they occur.
Taking the Dividend Seriously
A common concern among income-oriented investors is the durability of a company’s dividend yield. Questions might arise as to whether a company offering sizable distributions may need to reduce them at some point.
During a recent conference call, I was glad to see the company directly addressing this elephant in the room. Kinder Morgan Co-Founder and Executive Chairman Rich Kinder actually got a little bit spicy in his language while emphasizing the company’s firm commitment to sustainable yield:
“We want adequate coverage of that dividend, and we want to make damn certain that once we do a dividend increase, that dividend increase is permanent and that we’re not retracting that at some later date.”
It’s heartening to see that Kinder Morgan’s co-founder is so passionate about maintaining the company’s dividend after increasing it. But beyond KMI’s yield, how is the company doing?
Kinder Morgan: Fairing Up
Fortunately, even with oil-price fluctuations, Kinder Morgan seems to be faring well. For instance, the company recently announced that its state-of-the-art modular liquefaction units project is in service.
Kinder Morgan Natural Gas East Region President Kimberly Watson provided further details on the project’s envelope-pushing technology:
“The team coordinated with our customer and local, state and federal agencies to put in service a new technology for modular liquefaction units. Its functionality as a bi-directional import/export facility makes it ideal for the changing flow patterns that can occur from time to time.”
On top of that, a federal judge in Texas recently provided a favorable ruling on Kinder Morgan’s Permian Highway Pipeline. Evidently, the judge ruled against an environmental group’s challenge to federal approval of the project.
With the challenge denied, that’s one less obstacle to the completion of Kinder Morgan’s extensive $2.3 billion pipeline. And for investors, it’s another sign that Kinder Morgan is making good progress in its most important pipeline programs.
The Bottom Line
Some folks are going to get shaken out of the KMI stock trade when energy prices dip. That’s a shame as KMI offers a generous and sustainable dividend while Kinder Morgan is moving ahead with potentially lucrative projects.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.