Kinder Morgan (KMI 0.96%) recently unveiled its 2022 financial expectations. One thing the natural gas pipeline giant anticipates doing next year is increasing its dividend, which already yields well above average at 6.8%. Here's a closer look at what the company sees ahead.

A cash flow machine

Kinder Morgan expects to produce about $4.7 billion, or $2.07 per share, of distributable cash flow in 2022. While that would be down about $700 million, or 13%, from 2021's total, it's up about $400 million, or 9%, after adjusting for the big one-time boost it got from winter storm Uri in the first quarter. 

A person at a computer with financial charts on a desk overlaid by an upward pointing arrow.

Image source: Getty Images.

Kinder Morgan's ability to cash in on winter storm Uri last year is helping fuel the underlying growth in its 2022 cash flow. The company used the cash windfall to help purchase Stagecoach Gas Services. It paid $1.225 billion in cash for that pipeline and storage company. That purchase price represented about 10 times Stagecoach's 2020 earnings. However, Kinder Morgan expects the multiple to compress into the high single digits as it integrates Stagecoach into its existing footprint.  

In addition to Stagecoach, Kinder Morgan will benefit from its $310 million acquisition of Kinetrex Energy. On top of that, the company will get a boost over the next year from robust market conditions thanks to higher oil prices. Finally, it recently completed several natural gas pipeline expansion projects that will provide some incremental income in 2022. 

Fueling growth in 2022 and beyond

Kinder Morgan plans to return more money to shareholders next year thanks to its growing cash flow. The company expects to increase its annual dividend outlay by about 3% to $1.11 per share in 2022. In addition, it expects to opportunistically repurchase up to $750 million of its shares next year.

Most of the rest of its cash flow will go toward expansion projects. The company expects to invest about $1.3 billion across several projects next year. 

One notable capital spending driver is the Kintrex Energy deal. When Kinder Morgan bought Kintrex, it had three renewable natural gas facilities under development. The company recently started construction on those facilities, which will cost $146 million, and should start commercial operations by the fall of 2022. 

That's one of several investments the company is making on energy transition-type projects. Kinder Morgan recently partnered with Neste to create a premier raw material and logistics hub in the U.S. to support the increased production of renewable diesel, sustainable aviation fuel, and renewable feedstock for polymers and chemicals. The company expects to complete the $65 million project in the first quarter of 2023. Kinder Morgan is also investing $64 million on a project to reduce the emissions of its refined products terminal hub along the Houston Ship Channel and $36 million on a renewable diesel rail hub in California. These early-stage investments should set the stage for future growth. 

After accounting for its dividend outlay and capital spending, Kinder Morgan expects to generate about $870 million of excess cash next year to fund its share repurchase program and strengthen its balance sheet. That has the company on track to end the year with a leverage ratio of 4.3, below its 4.5 long-term target. The excess cash and conservative financial profile give it the financial flexibility to make additional growth-focused investments if the right opportunities emerge.

A rock-solid income stream

Kinder Morgan sees its underlying cash flow rising next year, driven by a stronger oil market and recent additions to its portfolio. That's giving it the fuel to boost its dividend and continue investing in expanding its portfolio to drive future growth. Given its already high yield, Kinder Morgan stands out as an attractive option for those seeking to add a steadily rising income stream to their portfolio.