|
|
|
|
New Pipelines Will Boost Kinder Morgan's Earnings +43% This Year |
Published:
September 29, 2008
Kinder Morgan Energy Partners (NYSE: KMP, $53.64) is one of the largest pipeline and
terminal operators in the country. It's the largest independent
operator of pipelines that transport refined petroleum products
(gasoline, diesel, jet fuel, and natural gas liquids). It's also is a major shipper of
coal, natural gas and
carbon dioxide (the latter of which is used to recover crude oil
from older fields). A growing portion of the business generates
fee-based income that reduces KMP's exposure to commodity price
swings and provides predictable cash flow.
Formed in 1992, KMP is structured as a publicly traded
master
limited partnership (MLP).
It's backed by pipeline energy giant Knight, which holds a 13.9%
interest. (Knight was formerly Kinder Morgan Inc., which was
privatized last year). Kinder Morgan Management (NYSE: KMR) acts
as general partner and manager.
Dividend: As an MLP, Kinder Morgan doesn't pay
corporate income taxes but instead passes along most of its
taxable income as well as cash flow to shareholders (known
as "partners"). Over the past decade, the distribution has
increased about +17% a year, in line with rising income.
And while other companies were slashing their dividends this
past year, KMP's management hiked the quarterly payout
+16.5% to $0.99 per share. Further dividend increases are
slated for the coming quarters, as management told
shareholders in the second quarter report that it
expects to declare cash distributions of more than $4.02 per
unit for 2008. That gives the shares a minimum yield of
7.5% of today's
price ($4.02/$53.64).
The 2007 payout of $3.39 per share was covered by distributable
cash flow of $3.65 per share, giving a comfortable payout ratio
of 93%.
Because of certain tax rules on distributions, MLPs like KMP are
best held outside a tax-deferred IRA type of account. You can
learn more about the tax implications at
our online financial dictionary.
Performance: Driven by a series of acquisitions
and internal development projects, KMP's cash flow has grown an
average +14% annually over the past three years. During the first
half of this year, high commodity prices combined with a
sluggish economy reduced demand for petroleum products and the
volume of products shipped through KMP's pipelines.
However, tariff increases and fee-based businesses helped the
company weather a challenging environment and generate an
impressive +46% increase in distributable cash over the year-ago
period.
Outlook: Since 2005, KMP has had three new
pipeline joint ventures in the works. All three are slated for
completion next year. They're already fully subscribed with
long-term contracts from multiple shippers and should
substantially boost the company's distributable cash flow per
share and distributions for years to come.
The Rockies Express Pipeline will be one of the largest natural
gas pipelines in North America and allow KMP to benefit from
growing natural gas production in the Rocky Mountain region.
The Louisiana Pipeline will provide access to new supplies of
increasingly significant imported liquefied natural gas.
And the Midcontinent Express Pipeline will carry natural gas
from the prolific basins in Oklahoma to Alabama and Texas. The substantial cash
generated by these projects should allow KMP shareholders to
enjoy a still healthy level of dividend growth.
Segments of these projects are already completed and, together
with recent acquisitions, are expected to contribute to earnings
growth of about +43% this year and another +11% in 2009.
Action to Take -->
KMP is a proven dividend
grower in a tough economic environment, making it a solid
long-term investment for investors seeking a secure income
stream.
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
| To
receive in-depth guidance on today's leading income investing
opportunities each month, plus access to several model portfolios,
please subscribe to Carla Pasternak's premium newsletter -- High-Yield
Investing. |
|
|
Income Security
of the Month
If you're looking for
high yields, monthly payments and unprecedented safety from your
investments, then you need to learn more about our "Income
Security of the Month" for November 2008. This stable
preferred stock has a long
track record of paying some of the most solid dividends in Wall
Street history. In fact, the preferred issue pays a monthly dividend
totaling 10.3% annually
and has
outperformed the S&P 500 by more than +44 percentage points over the last
year!
|
Top
10 Stocks for 2008!
Since we began publishing this report back in 2003, the picks we've
featured have consistently beaten the broader market -- delivering average
gains of +21.3% per year and outperforming the S&P by a nearly
2-to-1 margin. Act now to reserve your copy of our newest report -- Top
Ten Stocks for 2008. |
|
|
