Kinder Morgan

Source: Kinder Morgan Company Presentation

The oil and natural gas boom in the United States continues unabated, and Kinder Morgan (NYSE:KMI) sits right at the heart of it. Kinder Morgan posted solid growth across its major operating segments, which prompted the company to raise its dividend. Now that its quarterly results are out, let's analyze Kinder Morgan's quarterly performance within the context of its ability to pay and raise its hefty distributions.

Strong distribution coverage
For an MLP like Kinder Morgan Partners (NYSE:KMP), investors count on those hefty quarterly payouts. But, it's critical to make sure an MLP can afford to pay its distribution with underlying cash flow. Importantly, Kinder Morgan Partners generated more than enough cash to pay its first-quarter distribution. In fact, it earned $76 in excess cash above what it distributed to investors this quarter. That's a very healthy coverage which allowed the company to increase distributions and therefore plan even greater cash return to investors next quarter.

Kinder Morgan Energy Partners expects to declare cash distributions of at least $5.58 per unit this year. That would represent approximately 5% growth versus last year's distribution. This is made possible by strong underlying growth across the company's operating segments, as well as positive impacts expected from the recent marine tanker acquisitions. El Paso Pipeline Partners (NYSE:EPB) is estimated to distribute $2.60 per unit. Although El Paso kept its dividend flat on a quarter-over-quarter basis, it still represents a 2% increase from the same quarter last year.

Spending spree paying off 
Kinder Morgan put up a solid performance across its natural gas, carbon dioxide, and oil businesses. First, its natural gas pipelines unit generated segment earnings of $723 million, up 46% year over year. Management credits its acquisition of Copano last year as a primary driver of such outstanding growth. Kinder Morgan has made significant investments in natural gas, as its natural gas pipeline segment now represents nearly half of the entire company's earnings.

However, it's important to note that Kinder Morgan Partners is still growing its businesses organically, and isn't just relying on growth through acquisitions. Even if you strip out the benefits of the Copano acquisition, Kinder Morgan's natural gas pipelines segment still grew earnings before depreciation and amortization by 12.5%, or $62 million. This demonstrates the execution abilities of Kinder Morgan Partners' existing assets, as well as the contributions from its recent investments.

Kinder Morgan's fantastic performance didn't stop there. Its carbon dioxide segment grew earnings by 7%. Management attributed solid results to higher oil production at its SACROC unit as well as increased carbon dioxide sales and transport volumes. Among the company's other operating segments, products pipelines and terminals each grew earnings by 2% and 22%, respectively, versus the same period one year ago.

Management has ambitious growth plans this year, and impressively, believes the company may beat its own lofty expectations. The natural gas pipeline segment was initially expected to produce 14% growth, but thanks to its great start to the year, management now believes the unit will likely perform above its original estimates. Strong growth is expected across Kinder Morgan's other major segments as well. For example, the carbon dioxide business is on track to grow by 8%. And, the product pipelines and terminals units are expected to grow earnings by 18% and 21%, respectively.

The Foolish takeaway
Kinder Morgan, as well as the Master Limited Partnerships Kinder Morgan Energy Partners and El Paso, are extremely valuable investments thanks to the magic of compounding interest. Not only do they provide high yields ranging from 5%-7% across the various entities, but they each plan to grow those payouts in 2014. This is made possible thanks to their highly successful oil and natural gas pipelines and storage terminals. The energy boom taking place in the United States is enriching all sorts of companies, and that certainly includes Kinder Morgan.

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Bob Ciura owns shares of Kinder Morgan Energy Partners LP. The Motley Fool recommends El Paso Pipeline Partners LP and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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