Dividend stocks can provide you with a reliable and steadily growing income stream in retirement. High-yield dividend stocks can put even more money in your pocket -- that is, if you can identify the ones that are truly high-quality businesses rather than well-disguised yield traps.
To help you in this regard, here's an excellent company that can pay you sizable dividends for many years to come. It has a high yield -- currently about 5% -- but its dividend is well supported by its strong cash-flow generation. And rather than risky, it's arguably one of the safer stocks in the market today.
With more than 80,000 miles of natural gas, oil, gasoline, and carbon dioxide pipelines stretching across North America, Kinder Morgan (NYSE:KMI) is one of the biggest and most important energy infrastructure companies on the planet. Its pipeline network connects to all the major shale formations and transports about 40% of all the natural gas consumed in the U.S.
More than 90% of Kinder Morgan's cash flow is fee-based. This helps to insulate the pipeline titan from commodity price swings, thereby lessening risk for investors. Better still, two-thirds of the company's business is conducted via long-term take-or-pay contracts, which entitle Kinder Morgan to payment regardless of the amount of commodities that pass through its pipelines.
The stable, predictable nature of its business allows it to pay a sizable dividend to investors. Kinder Morgan expects to generate $5 billion in distributable cash flow in 2019, of which $2.3 billion will be passed on to shareholders via dividends. Management also returns capital to investors via opportunistic share repurchases; the company has bought back $525 million of its shares since 2017.
Stronger than before
It should be noted that Kinder Morgan reduced its dividend by 75% in 2015. At the time, Kinder Morgan was reliant on the capital markets to raise the money it needed to fund its expansion projects. When those capital sources dried up, the company was in a tough spot, and it needed to tap the cash it typically paid out in dividends to close its funding gap.
That move, while painful at the time, has transformed Kinder Morgan into a far stronger business today. It no longer needs to rely on the debt and equity markets to raise capital. Instead, it funds its growth projects out of its own cash flow. The pipeline giant has also paid off significant levels of debt, which has strengthened its balance sheet and helped to further reduce risk for investors.
Better still, Kinder Morgan has rapidly increased its dividend in recent years. The company boosted its payout by 60% to $0.80 annually in 2018, then raised it another 25% to $1.00 in 2019. Management has also said that it intends to increase the dividend by 25% to $1.25 in 2020. That places Kinder Morgan's current yield at nearly 5% and more than 6% based on its projected 2020 payout.
An attractive price
Best of all, Kinder Morgan's stock can be had for a bargain price. Shares currently trade for only about nine times the energy infrastructure giant's forecast distributable cash flow in 2019. That's a great deal for a high-quality business like Kinder Morgan. Co-founder Richard Kinder appears to agree; he's been buying millions of shares near current prices in recent days.
As such, retirees may want to consider buying alongside Kinder and investing in this excellent high-yield dividend stock today.