What happened

Oil and gas stock Kinder Morgan (KMI -0.05%) tanked on Thursday, losing 5.9% in value as of 12:45 p.m. EDT in reaction to the company's third-quarter numbers released Wednesday evening. I believe the market has overreacted.

So what

Here are some notable numbers from Kinder Morgan's third-quarter earnings report:

  • Revenue was up 31% to $3.8 billion.
  • Net income was up 8.8% to $495 million.
  • Distributable cash flow (DCF) was down 6.6% to $1 billion.

Investors often pour money into midstream oil and gas companies like Kinder Morgan for dividends. DCF is therefore a key metric as it reflects the cash available for distribution to shareholders after factoring in the company's maintenance capital expenditures and one-time expenses, if any.

A person working on pipelines in an oil and gas company.

Image source: Getty Images.

The drop in Kinder Morgan's DCF, therefore, seems to have miffed investors, but they shouldn't have to worry as long as DCF didn't drop because of a fall in profits. Kinder Morgan, in fact, increased its dividend by 3% earlier this year and still had $397 million in DCF left in Q3 after factoring in the higher dividend payout.

Overall, Kinder Morgan's natural gas volumes increased 3%, refined products volumes grew 12%, gasoline volumes rose 9%, and jet fuel volumes surged 56%, all year over year in Q3. Volumes in some areas were lower, though, such as natural gas gathering and crude pipelines.

Over the nine months ended Sept. 30, 2021, Kinder Morgan earned net income worth $1.7 billion and DCF worth a whopping $4.4 billion, which was up almost 30% over the comparable period of 2020.

Now what

The energy infrastructure company is investing money into a variety of projects, including alternative fuels, while growing its dividends steadily. For 2021, Kinder Morgan expects to generate DCF worth $5.4 billion versus $4.6 billion in 2020 and $4.9 billion in 2019. The biggest takeaway from Kinder Morgan's third-quarter report, therefore, is that its DCF continues to grow, which also means Kinder Morgan's high dividend yield of 5.8% looks safe. That's the factor that should matter most to investors in high-yield oil stocks.