The selloff in Kinder Morgan and other MLPs this summer has been peculiar because KMI stock mostly avoided the pain that hit the rest of the energy sector a year ago when the price of crude oil first began falling. The massive declines are happening now, months after the oil supply glut should have been old news. Some of this is due to belated fears that U.S. domestic production – which has been slowing in recent weeks – will crimp the volume growth that drives pipeline profits. That’s a legitimate concern. But hardly one that would justify this kind of move in the stock price.
Particularly when you consider Kinder Morgan’s most recent quarterly earnings release. Kinder Morgan increased its project backlog by $3.7 in the second quarter to $22.0 billion, meaning that KMI has no shortage of growth prospects in front of it. Lower energy prices are a problem, to be sure. While KMI gets the vast majority of its revenues from fee-based contracts that are not sensitive to energy prices, the company is not completely immune. KMI estimates that every $1 change in the price of crude oil lowers distributable cash flow by $10 million. That sounds like a lot of money, but remember that Kinder Morgan produces over $15 billion per year in sales. Even at today’s depressed priced, KMI generated enough distributable cash flow in the first half of the year to cover its dividend with $226 million to spare. And speaking of that dividend…last month Kinder Morgan raised its dividend by 14%. And management reaffirmed that it intended to raise KMI’s dividend by at least 10% per year from 2016 to 2020.
Source: Charlessizemore.com
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