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Why Kinder Morgan Stock Slumped 28% in the First Half of 2020

By Matthew DiLallo – Jul 8, 2020 at 8:28AM

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Turmoil in the oil market forced the pipeline company to rethink its plans.

What happened

Shares of Kinder Morgan (KMI -0.71%) declined by 28.3% during the first half of 2020, according to data provided by S&P Global Market Intelligence. The driving factor was all the turmoil in the energy sector, which forced the company to alter its outlook and dividend growth plan. 

So what

Oil prices took a nasty tumble during the first half of this year. Overall, WTI, the primary U.S. oil price benchmark, fell 36%, though at one point it crashed into negative territory. This sell-off in the oil market will impact Kinder Morgan. It has direct and indirect exposure to oil prices as it produces some oil and has some volume-based contracts. As a result, Kinder Morgan now estimates that it will generate about $4.6 billion, or $2.02 per share, of distributable cash flow this year, about 8% below last year's level and 10% less than its initial 2020 outlook. 

Several pipelines with the sun shining brightly.

Image source: Getty Images.

With its cash flow under some pressure, Kinder Morgan decided to defer about $700 million of capital projects, bringing its 2020 budget down to $1.7 billion. The company also opted to only increase its dividend by about 5% instead of its long-standing plan to boost it 25%. These moves will ensure that the company keeps its outflows for the dividend and capital spending within its expected cash flows so that it doesn't put any pressure on its balance sheet.

Now what

Kinder Morgan wasn't immune to this year's downturn in the oil market. It expects its cash flow to decline, which forced it to slash its growth-focused spending and moderate its dividend growth plan.

However, Kinder Morgan plans to revisit the dividend as industry conditions improve. Because of that, it could potentially deliver the full 25% increase later this year. When combined with its current 7% yield, that upside makes Kinder Morgan look like an attractive option for dividend investors following this year's sell-off.

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

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