Undervalued and High-Yielding Kinder Morgan Is Moving Higher
We called out Kinder Morgan (NYSE: KMI) as a buy last year with the idea its 6.75% was overly attractive and not likely to remain so high relative to share...
Kinder Morgan Is A Yield Dividend Investors Need To Own
We called out Kinder Morgan (NYSE: KMI) as a buy last year with the idea its 6.75% was overly attractive and not likely to remain so high relative to share prices for long. Now, a year later, we are sticking by that outlook with this correction: Kinder Morgan’s yield is overly attractive and not likely to remain at 6.2% for long, even with the expectation of future dividend increases.
You see, Kinder Morgan is not only attractive in its own right but the company’s yield and value make it a no-brainer compared to the average S&P 500 company and even the Ten-Year Treasury when it comes to income investing. The Ten-Year Treasury may be a “safer” asset and it may have a yield that is on the rise but even the most aggressive forecasts for interest rates pales compared to the yield and growth outlook you get with Kinder Morgan, Inc. As for the S&P 500? It’s trading above 20X earnings with a shaky outlook and yields 500 basis points less.
Kinder Morgan Guides For Growth, And A Growing Dividend
Kinder Morgan had a very robust quarter in which revenue exceeded the Marketbeat.com consensus estimate and earnings provided robust coverage of the dividend. The company reports $4.43 billion in consolidated revenue which is up $4.43 B over last year and beat the consensus by 2200 basis points. There were some acquisitions integrated over the past year so the figures may not be directly comparable but they are supported by organic growth and strength in the new businesses. The key takeaway is that cash flow, income, and earnings also exceeded the analyst’s estimates with the adjusted Q4 EPS of $0.27 a penny better than expected.
The only bad news is that distributable cash flow declined on a YOY basis but there are one-off factors impacting the results including integration costs of acquired businesses. Regardless, the company’s DCF provided ample coverage of the dividend with the dividend-to-DCF ratio running near 53%. More importantly, the company is guiding for a 40% increase in profits and a 3.0% increase to the dividend that may be compounded by additional acquisitions and/or share repurchases.
“Our assets once again generated robust Adjusted Earnings and strong coverage of this quarter’s dividend. The company provides our investors with dependable value grounded on stable cash flows and a time-honored corporate philosophy: fund our expansion capital opportunities internally, maintain a healthy balance sheet, and return excess cash to our shareholders through dividend increases and/or share repurchases,” said KMI Executive Chairman Richard D. Kinder.
The Analysts And Institutions Are On Board With Kinder Morgan
The analysts only rate Kinder Morgan a Hold but it is a firm Hold with a consensus price target that has been moving higher over the past year, 90-day, and 30-day periods. The current consensus assumes about 4% of upside with another 16% on top of that implied by the high price target. The high price target of $21 was set in December by Mizuho with the firm lowering its target by a dollar while maintaining one of 2 Buy ratings (out of 11 ratings total). As for the institutions, they’ve been rotating into and out of the stock over the past year but net activity is bullish and worth more than 1.5% of the shares. The institutions own about 59% of the stock, insiders hold another 14%.
The Technical Outlook: Range-Bound Kinder Morgan Is Moving Higher
Shares of Kinder Morgan have been range-bound over the last year or so but appear to be moving up within that range now. The recent price action has shares moving strongly higher and up from a key support level and now confirming support at a new, higher level. Assuming the $17.40 level holds as support, we see this stock moving up to the top of the post-COVID range near $19 and then moving higher.
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