For a high-quality business with a long-tenured, extremely capable management team that pays out tons of cash to investors, look no further than Kinder Morgan (KMI -0.06%). Kinder Morgan, as well as its various entities, will satisfy the search for yield in such a low-rate investing climate. Kinder Morgan likely has many profitable years ahead of it, thanks to the rapid increase in oil and gas production in the United States.
When it comes to Kinder Morgan, there are many options for potential investors to choose from. Here's why each stands to reward investors in the upcoming year.
The right place at the right time
Kinder Morgan should thrive this year, and for many years ahead, because of the ongoing oil and gas revolution in the United States. Thanks to new drilling techniques that have made previously untapped oil and gas resources suddenly viable, Kinder Morgan is positioned very well. Its massive network of midstream transportation and storage assets will be in high demand for the foreseeable future.
These pipelines and terminals are operated by Kinder Morgan Energy Partners (NYSE: KMP), the master limited partnership that income investors should get to know. Because of the tailwinds facing the oil and gas industries in the United States, Kinder Morgan Energy Partners will thrive this year. In fact, management expects to grow core operating earnings by 13% next year, and to investors' delight, much of this cash will be funneled straight through to its unit-holders.
Kinder Morgan Energy Partners already yields 6.7%, and that will likely grow even higher this year. Kinder Morgan Energy Partners expects to raise its 2014 distribution by 5%. To accomplish this, Kinder Morgan has identified more than $14 billion in investment opportunities to keep its growth strategy firmly on track.
One savvy investment in particular that should pay off is management's decision to acquire two oil tanker companies in a $1.2 billion deal. Kinder Morgan paid just 8 times EBITDA for the assets, and should realize significant efficiencies now that it can more effectively transport oil and gas in the United States.
A second MLP for natural gas enthusiasts
In addition to Kinder Morgan Energy Partners, potential investors have a second master limited partnership under the Kinder Morgan umbrella in the form of El Paso Pipeline Partners (EPB). El Paso is the business that owns and operates most of the natural gas midstream assets. As has been widely reported, the natural gas boom in the United States is in full swing. And, now that natural gas prices are on the upswing, having recently reached $4.25, El Paso has pricing power as an additional tailwind.
Moreover, those investors who love high yields will be enticed by the fact that El Paso Pipeline Partners is the highest-yielding security within the Kinder Morgan family. El Paso yields 7.3% at recent prices, and there's plenty of room for that distribution to grow even further. El Paso plans more than $1 billion worth of its own expansion projects in the upcoming year.
These expenditures are already under contract with customers, which means El Paso unit-holders will benefit in 2016 and beyond. In 2014, management believes El Paso will generate $1.3 billion in core earnings, which would amount to 7% growth. That's why El Paso expects to distribute $2.60 per unit this year, a 2% increase over 2013's total.
Why Kinder Morgan is ideal for risk-averse income seekers
Any investors looking for management that adeptly allocates capital to wise strategic investments, in addition to high yields that tower over the yield available on most other investment options, Kinder Morgan should be on the list. Most options available to investors -- including bonds, traditional dividend stocks, and certificates of deposit -- pay very little in yield. Investors who value the wealth-compounding magic of high yields should seriously consider adding any of the Kinder Morgan businesses to their portfolios in 2014.
9 more blue chip, income investing ideas from The Motley Fool