Kinder Morgan (KMI) Raises Quarterly Dividend 60% to $0.20; 4.9% Yield

Kinder Morgan (NYSE: KMI) declared a quarterly dividend of $0.20 per share, or $0.8 annualized. This is a 60% increase from the prior dividend of $0.1250.

The dividend will be payable on May 15, 2018, to stockholders of record on April 30, 2018, with an ex-dividend date of April 27, 2018.

The annual yield on the dividend is 4.9 percent.

“The board delivered on our commitment made in mid-2017 with the $0.20 dividend we are declaring today,” said Richard D. Kinder, Executive Chairman. “Even with the substantial dividend increase, we still expect to internally fund all of our growth capital with some excess remaining. In the first quarter, we used some of that excess to repurchase shares. In addition, we remain committed to continuing the important work of strengthening our balance sheet and attaining a Net Debt-to-Adjusted EBITDA ratio of at or below five times. For the foreseeable future, we expect to continue funding all growth capital through operating cash flows with no need to access capital markets for growth capital,” Kinder added.

Chief Executive Officer Steve Kean said, “One of the strengths of this company is strategically positioned fee-based assets that generate predictable cash flows, and this quarter once again demonstrated that strength. Several business units achieved strong financial performance in the first quarter and are poised to continue that success through the remainder of the year. During the first quarter, we made substantial progress on the Elba Liquefaction Project and began work on the Gulf Coast Express Project. We had very good commercial and operating performance, exceeding our plan for the quarter and are showing first quarter earnings per common share of $0.22.”

Kean continued, “For the quarter, we achieved distributable cash flow (DCF) of $0.56 per common share, representing 4 percent growth over the first quarter of 2017, resulting in $804 million of excess DCF above our dividend. Kinder Morgan’s top priority is generating significant shareholder value and completing attractive return growth projects is a key part of that commitment. We continue to have good success in this area as we completed approximately $700 million of projects while adding approximately $900 million of new projects to our backlog during the first quarter. These new projects have attractive returns as demonstrated by our average capital-to-EBITDA multiple (excluding the CO2 segment) improving during the quarter to approximately 6.0 times.”

KMI reported first quarter net income available to common stockholders of $485 million, compared to $401 million for the first quarter of 2017, and DCF of $1,247 million, up 3 percent from $1,215 million for the comparable period in 2017. The increase in DCF was driven by greater contributions from the Natural Gas and CO2 Business Units, partially offset by higher cash taxes, greater sustaining capital, and the impact of the KML IPO. Net income available to common stockholders was further impacted by a $34 million unfavorable change in total Certain Items (as described under “Non-GAAP Financial Measures” below) compared to the first quarter of 2017. First quarter 2018 Certain Items had minimal impact with a few largely offsetting items: legal and environmental reserves (related primarily to the SFPP rate case) and unsettled market value of hedges offset by favorable impacts from tax reform on certain joint ventures. First quarter 2017 Certain Items were positive due primarily to a favorable outcome on a bankruptcy claim.

2018 Outlook

For 2018, KMI’s budget is set to declare dividends of $0.80 per common share and achieve DCF of approximately $4.57 billion ($2.05 per common share) and Adjusted EBITDA of approximately $7.5 billion, and it expects to meet or exceed those DCF and Adjusted EBITDA targets. KMI now forecasts to invest $2.3 billion in growth projects during 2018 (excluding growth capital expected to be funded by KML), up $100 million from the budget, to be funded with internally generated cash flow without the need to access capital markets. KMI also expects to meet or beat its budgeted leverage metric of a year-end Net Debt-to-Adjusted EBITDA ratio of approximately 5.1 times.

KMI previously announced it would further enhance shareholder value through a $2 billion share buy-back program. KMI’s Board of Directors authorized the program to begin in December 2017. Since then, KMI has repurchased approximately 27 million shares for approximately $500 million. KMI plans to further utilize this program opportunistically.

KMI does not provide budgeted net income attributable to common stockholders (the GAAP financial measure most directly comparable to DCF and Adjusted EBITDA) due to the impracticality of predicting certain amounts required by GAAP, such as ineffectiveness on commodity, interest rate and foreign currency hedges, unrealized gains and losses on derivatives marked to market, and potential changes in estimates for certain contingent liabilities.

KMI’s expectations assume average annual prices for West Texas Intermediate (WTI) crude oil of $56.50 per barrel and Henry Hub natural gas of $3 per MMBtu, consistent with forward pricing during the company’s budget process. The vast majority of cash KMI generates is fee-based and therefore not directly exposed to commodity prices. The primary area where KMI has commodity price sensitivity is in its CO2 segment, with the majority of the segment’s next 12 months of oil and NGL production hedged to minimize this sensitivity. The segment is currently hedged for 32,970 barrels per day (Bbl/d) at $59.65/Bbl in 2018; 21,900 Bbl/d at $55.52/Bbl in 2019; 10,500 Bbl/d at $53.09/Bbl in 2020; 5,500 Bbl/d at $52.22/Bbl in 2021; and 500 Bbl/d at $52.85 in 2022. For 2018, KMI estimates that every $1 per barrel change in the average WTI crude oil price from the company’s budget of $56.50 per barrel would impact budgeted DCF by approximately $7 million and each $0.10 per MMBtu change in the price of natural gas from the company’s budget of $3 per MMBtu would impact budgeted DCF by approximately $1 million.

For a dividend history and other dividend-related data on Kinder Morgan (KMI) click here.

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