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 -0.43%) fits the bill.
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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.
