Don't Worry, Be Happy With Kinder Morgan

Kinder Morgan, (NYSE: KMI  ) provided its 2014 financial expectations for each of its publicly traded businesses. Also included in the announcement were the two Master Limited Partnerships, Kinder Morgan Energy Partners (UNKNOWN: KMP.DL  ) and El Paso Pipeline Partners (UNKNOWN: EPB.DL  ) . All three fell hard after the release, which indicated the market was thoroughly disappointed in what each had to say.

While it's not entirely surprising that the market would overreact, investors with a long-term focus shouldn't be disappointed. That's because each of the Kinder Morgan securities still has a lot to offer investors, both next year and beyond. Kinder Morgan and its various businesses will reap huge rewards from the booms in natural-gas adoption and domestic oil production.

Distribution outlooks disappoint
Each of the various Kinder Morgan entities declared their expected distributions for next year, which disappointed investors judging by the market's reaction. Kinder Morgan, plans to pay a $1.72 per-share dividend next year, which would represent 8% growth over what it expects to pay this year. Kinder Morgan Partners expects to raise its 2014 distribution by 5% over what it intends to pay in 2013. Lastly, El Paso Pipeline plans to distribute $2.60 per unit in 2014, only a 2% increase over its current year expected distribution. El Paso's results disappointed the market the most, which sent its units down nearly 10% on the day of the announcement.

You should consider that management may just be erring on the side of caution in its projections. The company is still expected to grow in terms of its underlying business, and insider purchases should give investors plenty of confidence. Management is entirely comfortable with Kinder Morgan's direction, which Chairman and CEO Richard Kinder proved when he purchased nearly $18 million worth of shares.

Management expects Kinder Morgan Pipelines to generate $6.4 billion in core operating earnings next year, a 13% increase over what it had forecast to earn this year. This should fuel strong results to Kinder Morgan, as well.

Kinder Morgan has plenty of growth left in the pipeline thanks to the billions in investments set aside for next year. Investing in its infrastructure is key for an energy company like Kinder Morgan. Along with the 2014 outlook, Richard Kinder stated: "We anticipate strong growth in 2014 across the Kinder Morgan family of companies. We currently have identified approximately $14.4 billion in expansion and joint venture investments that we are confident will contribute to our growth."

As far as El Paso Pipelines is concerned, growth next year will be fueled by more than $1 billion worth of its own expansion projects. These expenditures are already under contract with customers, which compels management to declare that El Paso unit-holders will benefit in 2016 and thereafter. Next year, El Paso is expected to generate $1.3 billion in core earnings, representing 7% growth compared to 2013.

Bottom line: investors are still better off
Disappointment over Kinder Morgan's 2014 financial and distribution guidance seems foolish. These stocks shouldn't be expected to produce huge distribution growth rates. That's because they already distribute the vast majority of their cash flow to investors. Consider that each stock currently provides a very high yield that is significantly above the yield on the S&P 500 Index.

Kinder Morgan yields nearly 5% at recent prices. The other two MLPs provide even greater yields; Kinder Morgan Partners pays a 6.7% distribution, and El Paso Pipelines offers a 7% yield. Plus, these yields don't include the expected raises next year. Modest distribution growth is entirely reasonable when investors are already receiving such high yields.

Moreover, underlying business conditions remain strong. Put simply, the real reasons for investing in any of the Kinder Morgan entities are steady growth along with high distribution yields. Those will entirely remain intact next year, and likely for many years after that. As a result, disappointment over next year's outlook is misplaced.

Investors might question 2014 at Kinder Morgan, but we are confident in this company

The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

Read/Post Comments (1) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 05, 2013, at 12:47 PM, MightyMinnow wrote:

    Peek oil is behind us, but they sold a lot of Cadillac's and f-150's last quarter. Even an average winter is going to spike natural gas use (and heating oil). Jet sales mean jet fuel sales and cold winter vacationers means jet fuel sales too. Demand will offset some of the supply glut and we'll get a good price and "bigger" volume.

    If these propped up market caps sink, on a tapper tantrum, we could be looking at 8% or 9 % "safe" yields. We can't lose.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2753688, ~/Articles/ArticleHandler.aspx, 9/25/2016 6:43:24 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
EPB.DL $0.00 Down +0.00 +0.00%
El Paso Pipeline P… CAPS Rating: ****
KMI $21.94 Down -0.17 -0.77%
Kinder Morgan CAPS Rating: *****
KMP.DL $0.00 Down +0.00 +0.00%
Kinder Morgan Ener… CAPS Rating: *****