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Why Kinder Morgan Stock Slumped 15% in 2018

By Matthew DiLallo – Updated Apr 17, 2019 at 11:53PM

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The natural gas pipeline giant still gets no respect.

What happened

Shares of Kinder Morgan (KMI 0.11%) shot out of the gate in early 2018, rising more than 8% by mid-January before they lost their footing and fell double-digits by the end of March. While the pipeline giant's stock managed to claw its way back to even during the summer, shares sold off amid the market's fourth-quarter swoon. Overall, the natural gas pipeline company's stock lost 14.9% of its value last year, according to data provided by S&P Global Market Intelligence.

That oil-inspired sell-off, however, masked the fact that Kinder Morgan had several notable accomplishments last year. Here's a quick look at what happened in 2018.

A twist of pipelines with a bright sun shining through.

Image source: Getty Images.

So what

After slipping for the past few years, Kinder Morgan expected its cash flow to start growing again in 2018. Overall, the company estimated that it would produce $4.57 billion, or $2.05 per share, in distributable cash flow last year, about 3% higher than 2017's level. The company was actually on pace to exceed that forecast through the third quarter.

In addition to delivering better-than-expected earnings, Kinder Morgan also made excellent progress on its strategic plan. While the company decided to abandon its controversial Trans Mountain Pipeline expansion in Canada, it used the proceeds from the sale of that system to bolster its balance sheet. The company also locked up a few more expansion projects, which positions it to continue growing cash flow in 2019 and beyond. That visible growth enabled Kinder Morgan to fulfill its promise and boost its dividend last year, which it did by giving shareholders a 60% raise.

However, shares in the pipeline giant sold off during the fourth quarter of last year, dragged down by the plunge in the oil market. Crude prices crashed 40% from their peak in October, putting them down 19% for the year. That sell-off in the oil market weighed on Kinder Morgan's stock because the company produces some oil. However, less than 4% of its cash flow has direct exposure to commodity prices since fee-based contracts back the bulk of its earnings. Also, it has hedges in place that locked in the pricing on 75% of its oil production for 2018 and 68% in 2019.

Now what

The steps Kinder Morgan took last year position it for even faster-paced growth in 2019, as the company expects cash flow to rise 10% this year. As a result, last year's sell-off looks like a buying opportunity, especially for income-seeking investors: Kinder Morgan now yields 4.6% and expects to increase its dividend another 25% this year.

Check out the latest Kinder Morgan earnings call transcript.

Matthew DiLallo owns shares of Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.

Stocks Mentioned

Kinder Morgan Stock Quote
Kinder Morgan
KMI
$18.12 (0.11%) $0.02

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

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