Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



What Kinder Morgan's 2 New Investments Mean for You

Kinder Morgan Inc  (NYSE: KMI  ) is a truly massive company in size and scope. When you think of huge American energy companies, Kinder Morgan might not immediately come to mind. But the truth is Kinder Morgan has a massive footprint of oil and natural gas pipelines and storage facilities that stretches across the entire country through its midstream operators, Kinder Morgan Energy Partners (NYSE: KMP  ) and El Paso Pipeline Partners (NYSE: EPB  ) .

Kinder Morgan considers itself to have an unparalleled asset footprint and it's easy to see why. When you combine all of its various publicly traded entities, the Kinder Morgan family of companies is collectively the fourth largest energy company in America with a combined enterprise value of approximately $110 billion.

As a result, if you're on the hunt for a well-run energy company with a highly competent management team and a robust distribution, look no further than the Kinder Morgan family. Here's what Kinder Morgan has been up to recently and why it matters to you.

Kinder Morgan expands its tanker fleet
You may recall Kinder Morgan's decision last year to buy two separate oil tanker companies for a total of nearly $1 billion from private equity firms. The fleet initially consisted of nine tankers in all. This was somewhat of a controversial decision at the time that Kinder Morgan took some heat for because tankers were outside its core competency, and also because the market for the oil tanker business was unfavorable.

More recently, Kinder Morgan announced it would build an additional 50,000 ton liquefied natural gas-ready tanker. Construction is set to begin at the end of next year, with first delivery scheduled for 2017.

A key difference-maker to Kinder Morgan's tanker acquisitions is that its purchases are restricted to domestic marine transportation of crude and refined products. That meant that the acquisitions would serve to complement Kinder Morgan's existing transportation business.

This is already starting to pay off for Kinder Morgan. In its first-quarter earnings release, management forecast its terminals business was on track to exceed the 21% annual growth previously expected, due largely to the tanker acquisitions.

Increasing carbon dioxide activity
In addition to its expanded tanker fleet, Kinder Morgan is investing in its carbon dioxide business as well. The company recently announced it would invest $671 million to grow its carbon dioxide infrastructure in Colorado and New Mexico. Collectively, the capital expenditures will boost capacity at the selected sites by more than 1.5 billion cubic feet per day.

Kinder Morgan is seeing growing demand for carbon dioxide services, and will be able to increase production with the new round of investment. It seems management is on to something here, since the company grew earnings from its carbon dioxide segment by 7% in the first quarter.

This is a significant development, because carbon dioxide is big business for Kinder Morgan. In fact, its carbon dioxide business in Colorado record quarterly production in the first quarter. That's set to increase even further once the new investments are underway.

Capital investments to keep distributions flowing
Of course, one of the best reasons for owning Kinder Morgan, Kinder Morgan Energy Partners, or El Paso Pipeline Partners is their respective distributions. Indeed, Kinder Morgan pays a solid 4.7% dividend, while Kinder Morgan Energy Partners and El Paso pay distributions of 6.7% and 7.5%, respectively.

Because of its new strategic investments, in addition to its other businesses such as natural gas pipelines and product pipelines, it's likely Kinder Morgan will continue to generate enough cash flow to pay its hefty distributions.

Kinder Morgan Energy Partners expects to distribute all of its distributable cash flow projected for this year -- $5.58 per unit -- so the company could use some cash flow flexibility. While there are no guarantees, Kinder Morgan's expansions could pave the way for greater cash flow down the road.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (6)

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.

Be the first one to comment on this article.

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: 3016293, ~/Articles/ArticleHandler.aspx, 9/1/2015 8:38:58 AM

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...

Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

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 $0.00 Down +0.00 +0.00%
El Paso Pipeline P… CAPS Rating: ****
KMI $32.41 Down -0.22 -0.67%
Kinder Morgan CAPS Rating: *****
KMP $0.00 Down +0.00 +0.00%
Kinder Morgan Ener… CAPS Rating: *****