Kinder Morgan (KMI 0.27%) is one of my larger holdings. The natural-gas pipeline operator offers a generous dividend that is steadily increasing. These features align perfectly with my dividend-growth investment strategy.

I recently picked up a couple more shares. The pipeline stock is trading at a dirt cheap price these days, which has its dividend yield approaching 7%. That value and passive-income combo was too good to pass up.

A well-supported payout

The big draw with Kinder Morgan is its big-time dividend, which it supports with a very strong financial profile.

It generates very stable cash flows, primarily backed by long-term contracts and regulated rate structures. Overall, 93% of its cash flows have no commodity price exposures, while 67% have no volume risk.

Kinder Morgan pays out about half of those stable cash flows to investors via dividends. That enables it to retain substantial cash to finance expansion projects, repurchase shares, and maintain balance sheet flexibility.

The company expects to produce nearly $5.7 billion in cash flow from operations in 2023. It will use that to fund $2.8 billion of capital projects (including $2.1 billion of growth-related investments) and pay around $2.5 billion in dividends. That will leave it with a few hundred million dollars to spare.

That excess free cash has the company on track to end the year with a leverage ratio of around 4 times, well below its 4.5 target. That gives it lots of financial flexibility. Each 0.1 that the leverage number is below its target provides the company with about $770 million on its balance sheet to fund additional expansion projects, acquisitions, and opportunistic share repurchases.

Modest growth

Kinder Morgan currently has about $3.7 billion of commercially secured expansion projects in its backlog. Approximately 86% of that capital spending is on lower-carbon projects like natural gas pipelines, renewable natural gas projects, and carbon capture and sequestration. Those lower-carbon investments put it in a solid position for the future as the global economy pivots to cleaner energy sources.

Meanwhile, the company has ample financial flexibility to sanction additional expansions as compelling opportunities arise, and to make accretive acquisitions. The company's secured and future growth investments will help expand its cash flow over the next few years.

And that rising cash flow should enable it to continue increasing its dividend. The company gave investors a 2% raise earlier this year, its sixth straight year of dividend growth. It expects to continue delivering modest payout growth in the future. 

All for a value price

Kinder Morgan expects to produce about $2.13 per share of distributable cash flow this year. While that's down slightly from $2.17 per share last year, it's entirely due to higher interest rates on its floating-rate debt, which will impact earnings by $0.15 per share. The company's cash flow should grow as interest rates normalize and its expansion projects come on line.

With Kinder Morgan's stock recently below $17 a share, it trades at less than eight times its free cash flow or a 12% free cash flow yield. That's extremely cheap. Many top companies have free cash flow yields of less than 5%. The market is pricing Kinder Morgan as if it will never grow its free cash flow again. That's unlikely, given its capital-project backlog and significant financial flexibility to make accretive acquisitions and invest in additional expansions. 

A rock-solid passive income stock

Kinder Morgan isn't flashy. The pipeline giant pumps out a lot of cash, which it uses to pay dividends and invest in growing shareholder value. It also has a very strong balance sheet.

Because of that, it delivers a very sustainable dividend that should continue rising. It's the type of low-risk income stock that I want anchoring my dividend portfolio.