Please ensure Javascript is enabled for purposes of website accessibility

If You're in Your 70s, Consider Buying This Dividend Stock

By Joe Tenebruso - Updated May 22, 2018 at 7:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After recently boosting its dividend by 60%, this energy infrastructure titan now offers investors a 5% yield.

If you're in your seventies, you'll likely appreciate an investment that can provide you with a bountiful income stream, and ideally, one that's set to grow steadily in the years ahead. Even better would be if this investment had a relatively low-risk profile that would help you sleep well at night. Best of all would be if this stock currently traded for a bargain price.

Fortunately, there is one excellent business that meets all of these criteria. Here's why energy giant Kinder Morgan (KMI -0.47%) fits the bill.

Pipelines to an oil refinery

Image source: Getty Images.

With 85,000 miles  of oil and gas pipelines snaking throughout North America, Kinder Morgan is one of the largest energy infrastructure companies in the world. The company's pipeline network connects to every major natural gas supply basin in the U.S. and transports approximately 40% of all the natural gas consumed in the country. As such, Kinder Morgan is one of the businesses best positioned to profit from the shale gas revolution, which could drive U.S. natural gas demand higher by as much as 30%  over the coming decade.

Strong and steady cash flow generation

Kinder Morgan's tollbooth-like business model helps to reduce the risk for investors. Approximately 90%  of the company's business is fee-based, which insulates it from the commodity price fluctuations and adds a level of predictability to its revenue streams. Long-term take-or-pay supply contracts -- which require its customers to pay a guaranteed amount -- add an additional element of stability to Kinder Morgan's revenue and cash flow. 

A bountiful dividend

Management is committed to passing these strong cash flows on to shareholders. Kinder Morgan currently yields 5% after recently boosting its dividend by 60%, to $0.80 per share. Yet even after this large increase, the dividend represents less than 40% of the $2.05  in distributable cash flow the company is targeting in 2018.

Solid growth prospects

Kinder Morgan intends to use $2.3 billion of this excess cash flow to internally fund new growth projects,  with some of the remaining cash  used to repurchase shares. "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," Executive Chairman Richard Kinder said  in the company's first-quarter earnings release. This ability to self-fund its growth adds an additional layer of safety for investors.

More dividend hikes to come

Moreover, Kinder Morgan intends to continue to increase its distribution in the years ahead; management is targeting a cash payout of $1 in 2019 and $1.25 in 2020 . Thus, investors who buy shares today would effectively be obtaining a dividend yield of 7.8%  in 2020 based on their purchase price if Kinder Morgan can deliver on these targets.

An attractive price

Better still, Kinder Morgan's shares can currently be had for less than 8 times the company's projected distributable cash flow in 2018. That's a bargain price for a competitively advantaged business with strong long-term growth prospects.

All told, Kinder Morgan has many of the traits older investors will find attractive: a wide economic moat, robust cash flow generation, a high current dividend yield, solid dividend growth potential, and an attractive price. So if a high-quality -- and relatively low risk -- business that's likely to reward you with steadily rising dividends sounds appealing, you may want to consider buying Kinder Morgan today.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
$16.84 (-0.47%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.