What happened
Shares of Kinder Morgan (KMI -0.43%) gained 5.7% in the first half of 2022, according to data provided by S&P Global Market Intelligence. While that might not seem impressive, it was considering that the S&P 500 tumbled nearly 21% during that period.
Here's a look at what has fueled the natural gas pipeline company's outperformance so far this year.
So what
Kinder Morgan got 2022 off to a great start. The natural gas pipeline company generated $1.5 billion of distributable cash flow during the quarter. While that was well below the prior-year period's figure, that's entirely due to Winter Storm Uri's positive impact in 2021. After adjusting for that one-time event, Kinder Morgan's financial results were ahead of the year-ago period. Overall, the company generated enough cash to cover its high-yielding dividend and entire expansion program with room to spare.
That enabled Kinder Morgan to increase its dividend by 3%, its fifth consecutive year of growing the payout. Kinder Morgan offers income investors a 6.5% dividend yield at the current share price.
Kinder Morgan also made progress on new growth projects. The company secured enough customer commitments to move forward with a renewable diesel hub project in Southern California. It expects to finish this project early next year.
Kinder Morgan and its partners also made a final investment decision to expand their Permian Highway Pipeline after receiving enough customer commitments. The company expects to finish that project by November of 2023, which will give it more fuel to potentially grow the dividend in the future. It's working on another pipeline expansion project in that region and a larger-scale pipeline development to drive additional future growth.
Analysts have liked what they've seen from Kinder Morgan. Several have upgraded the stock and raised their price target this year. For example, Wells Fargo analyst Michael Blum upgraded shares from underweight to equal weight while boosting the bank's price target from $19 to $21 a share. The analyst believes Kinder Morgan could benefit from several tailwinds, including new natural gas pipeline and LNG export projects.
Now what
Kinder Morgan's natural gas pipeline operations continue to generate lots of cash, giving it the money to pay a high-yielding dividend while expanding its operations. Those expansion projects will provide it with more cash flow, enabling Kinder Morgan to steadily increase its dividend. That makes it an excellent option for investors seeking to collect passive income.
