Growth has been hard to come by for Kinder Morgan (KMI -0.64%) in recent years. Its distributable cash flow (DCF) dipped 4% per share last year and has been uneven over the past few years because of a variety of headwinds.
However, the company expects its DCF per share to grow by around 8% this year. Meanwhile, it's very bullish on future growth. One of the biggest catalysts fueling that optimism is the expansion it sees ahead for the U.S. natural gas market. That bodes well for the company's ability to continue increasing its 6.6%-yielding dividend.
A gas-fueled future
Kinder Morgan recently held its annual investor day. One of the key takeaways from that event is that the company is very bullish on natural gas. CEO Kim Dang stated: "The future for U.S. natural gas is very bright. And that has positive implications both for our existing business and for our ability to expand."
Fueling that view are forecasts that U.S. natural gas demand will increase by 20% by the end of this decade:
Image source: Kinder Morgan.
Growing gas demand will continue to benefit Kinder Morgan's natural gas pipeline business. It will further increase the utilization of its existing pipelines. In addition, it will provide the company with new expansion opportunities. It currently has $2.2 billion of new natural gas projects in its backlog that it expects to complete over the next few years. It anticipates securing many more expansion projects to support the growing demand for natural gas, especially to supply new liquefied natural gas (LNG) export facilities in the coming years.
Ideally suited to capitalize on LNG-powered growth
Kinder Morgan operates the country's premier natural gas infrastructure network. It currently transports 40% of the gas produced in the U.S. each year through its 70,000-mile pipeline system. The company also operates 15% of the country's working natural gas storage capacity.
While its natural gas network spans most of the country, it's heavily concentrated in the Gulf Coast region and is already a leading gas supplier to LNG export facilities. That strong strategic position in the Gulf Coast puts the company in a great place to continue growing as LNG demand rises in the future:
Image source: Kinder Morgan.
As that slide shows, Kinder Morgan already has contracts to supply 10 billion cubic feet of natural gas per day (bcfd) to LNG facilities by next year. That's more than 40% of the 24.1 bfcd of existing and under construction capacity. Meanwhile, the company is pursuing up to 13 bfcd of additional contracts. Securing additional capacity contracts will help boost the utilization of its existing assets while providing new expansion opportunities.
Building new gas pipelines to supply gas directly to LNG export facilities is one potential growth opportunity for the company. However, even if Kinder Morgan doesn't win more contracts to supply new LNG facilities directly, it will still benefit from the sector's growth. Rising demand should allow the company to expand its infrastructure in natural gas production basins. For example, the company is in discussions with potential customers on new projects in the Eagle Ford, Haynesville, and Permian basins. The company pointed out its belief that the Permian will need a couple more large-scale pipelines in the coming years. It thinks one pipeline will need to enter service in the 2026-2027 timeframe and another a couple of years later.
Increased utilization of existing pipelines and new expansion projects will help grow Kinder Morgan's cash flow. That will give the pipeline giant more fuel to increase its dividend. The company has already indicated it will increase its high-yielding payout by another 2% this year, extending its growth streak to seven straight years.
Kinder Morgan has a bright future
Kinder Morgan's growth engine has sputtered over the past few years. However, it appears poised to rev back up in 2024 and beyond, powered by strong natural gas demand growth. That should give the company more fuel to increase its high-yielding dividend. This growth potential makes it an excellent stock for those seeking a rising income stream.
