Check out the latest Kinder Morgan earnings call transcript.
Kinder Morgan (KMI 0.29%) recently closed the books on a strong 2018 in which results exceeded its initial expectations on all fronts, which sets the natural gas pipeline company up for continued success in 2019. That was a recurring theme on the conference call following its fourth-quarter results, in which management laid out five things investors should expect from the company this year.
1. We intend to increase our dividend another 25%
Founder Rich Kinder led off the call, making a few quick remarks. He noted that the company continues to generate strong cash flow, which it allocates across four buckets: dividends, share buybacks, debt reduction, and capital projects. On the dividend, he stated that "we've raised the dividend from $0.50 in 2017 to $0.80 in 2018, and reiterated our intention to increase it to $1.00 in 2019 and to $1.25 in 2020." That's a 25% increase for the coming year as well as the next one, making the company a top option for dividend growth investors.
2. We expect to complete two major projects this year
Next, President Kim Dang provided an update on the company's expansion projects, stating: "On GCX, we've secured 100% of the right-of-way, construction is under way, and we remain on target for an October 2019 in-service. On our Elba Liquefaction Project, we currently anticipate that we will be in service at the end of the first quarter." Those two projects will be key growth drivers for the company this year, helping support its view that it can increase cash flow per share from $2.12 in 2018 up to a record $2.20 in 2019.
3. We're working to squeeze even more gas into Permian Highway
In addition to finishing those two large projects this year, Kinder Morgan hopes to make significant progress on a third one, the Permian Highway Project. Dang noted on the call that "on PHP, we have identified opportunities to increase the capacity by about 100 million cubic feet a day and are currently working to sell that capacity." Kinder Morgan and its partners initially envisioned 2 Bcf/d (billion cubic feet per day) capacity for PHP, which was slightly larger than GCX's 1.98 Bcf/d. However, after ordering larger-capacity compression equipment, the company now believes it can squeeze more gas through the pipes. That will enable the company and its partners to generate a higher return on their investment, assuming the company can lock customers into long-term contracts for this incremental capacity, which is something to keep an eye on this year.
4. We're working on securing a few more expansion projects
Meanwhile, CEO Steve Kean hinted on the call that the company has a few other projects in development that it could add to its backlog this year. The first is an oil export terminal that's part of a joint venture with Enbridge (ENB -0.37%) and Oiltanking. Initially, Kinder Morgan's main contribution will be providing a coal terminal that will serve as the site's location, while Enbridge will supply the oil for export from its network of pipelines. However, Kean noted on the call that "we could add connectivity [to Kinder Morgan's pipeline network] in larger builds through KMCC." Though before the company expands the project so that it's more integrated into its network, it first needs to secure enough customers to build the first phase.
Kean also noted that rising drilling activity in the Bakken Shale is leading the company to actively look at investing capital to expand its Double H Pipeline. He stated that "volumes continue to grow and we continue to work on solutions for our customers to get them through Cushing. And there is some expansion capability on Double H."
If Kinder Morgan can secure these and other projects in development, it would give investors a clearer view of the company's long-term growth potential, which is why they should keep an eye out for new project announcements in 2019.
5. We expect to announce our decision on Kinder Morgan Canada by the end of the first quarter
Selling the Trans Mountain Pipeline in Canada last year made the future of Kinder Morgan's publicly traded Canadian subsidiary, Kinder Morgan Canada (KML), uncertain, since the company created that entity to finance Trans Mountain's expansion. With the expansion no longer in the cards, the company has been exploring its options for that entity. Dax Sanders, the company's chief strategy officer, updated investors on this process by stating:
Finally, a topic that I know is on everybody's mind is KML's ongoing strategic review. While we don't have anything to announce as the review is ongoing, we are hopeful that we will have the review completed and a direction to announce by the next earnings call. While this review is taking some time, the time we are taking is necessary, given the range of options, the cross-border complexity, the fact that a strategic combination or sale of the company are among the options, and the evaluation of those options require third-party price and term discovery, and that process takes time.
That's welcome news for investors because it means they'll soon have clarity on what the company intends on doing with Kinder Morgan Canada.
Expect more progress in 2019
Last year was a busy one on the strategic front as the company sold Trans Mountain while locking up new expansion projects. This year could be even more active, as the company expects to announce its plans for Kinder Morgan Canada, complete two large expansion projects, and secure additional ones all while giving investors another big pay raise. The hope is that all this strategic progress will light a fire under the company's stock price, which continues to trade at a dirt-cheap valuation.