Piping Hot Profits

Kinder Morgan Energy Partners (NYSE: KMP  ) , like its pipelines, is a conduit. A conduit for cash.

You see, this firm first distributes oil and gas, and in turn distributes cash to its unitholders. And in that regard, this is another quarter for the record books, folks. Kinder racked up a record amount of distributable cash flow in the three months ended June 30.

Distributable cash may be a foreign concept if you've never invested in a limited partnership like Kinder or ONEOK Partners (NYSE: OKS  ) , but the concept is pretty intuitive. Kinder needs to retain enough cash to pay debt service and other overhead costs, but whatever's left over is paid out in regular installments. The recent distribution hike is a routine occurrence with this profit machine.

So what's powering Kinder's performance? Quite a few things, actually.

The natural gas pipelines budget called for 18% growth this year, so strong results are no shock here. But the segment is well on its way to exceeding that target, thanks to strong margins in places like Texas. On account of bustling Barnett Shale activity by the likes of Devon Energy (NYSE: DVN  ) and XTO Energy (NYSE: XTO  ) , Texas is a mighty fine place to be a natural gas toll-taker. The intrastate system there exceeded its budget target by a whopping 40% for the quarter, and contributed about half of overall segment earnings before non-cash charges.

On account of ebullient oil prices, the CO2 business is hot as well. Enhanced oil recovery potential in places like the Permian Basin has recently led Occidental Petroleum (NYSE: OXY  ) to tap SandRidge Energy (NYSE: SD  ) for additional CO2 supply. Kinder is a major player in CO2 delivery, and this segment is well on its way to 40% growth for the year.

Finally, the terminals business, which marks the nexus between various forms of energy transport (rail, barge, etc.), had a quite decent quarter as well. Coal throughput hit a monthly record at one of Kinder's terminals in Virginia, and marine terminal acquisitions made a positive earnings contribution.

If you thought midstream players weren't worth your time while oil prices were notching fresh highs on a daily basis, perhaps this week's correction will make you reconsider the glory of go-betweens like Kinder Morgan. There surely is something sweet about stocks that pay you back.

ONEOK Partners is a Motley Fool Income Investor selection. For more companies happy to conduct some cash your way, sample the service and check out all past recommendations with a free 30-day trial.

Fool contributor Toby Shute is slightly older today and doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.

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