There are many ways to invest in Kinder Morgan, (NYSE:KMI). The various Kinder Morgan entities offer entry into one of the biggest energy companies in the United States. Kinder Morgan operates several different business segments, each of which is a leader in its industry. It's been well-publicized that America is in the midst of an energy revolution, due to soaring domestic production of oil and natural gas.
Kinder Morgan will play a major role in the oil and gas boom in the United States. In order for all that oil and gas to reach its end users, it needs storing, processing, and transporting across the country. That's where Kinder Morgan comes in. Here's what investors can expect from Kinder Morgan in the years ahead.
Stay the course
That's how Kinder Morgan describes its core strategy. The company intends to produce reliable results, driven by its focus on stable, fee-based assets. Kinder Morgan's business operates very similarly to a toll road. It collects fees based on the volumes of oil and gas it treats and transports. As a result, it's not particularly sensitive to changes in commodity prices. That's why investors can expect fairly reliable results year after year.
The midstream assets, including the pipelines and storage facilities, are operated by Kinder Morgan Energy Partners (UNKNOWN:KMP.DL) and El Paso Pipeline Partners (UNKNOWN:EPB.DL). Kinder Morgan purchased El Paso in 2011 for $21.1 billion, which represents one of the biggest energy deals in history. The acquisition was designed to significantly expand Kinder Morgan's footprint in natural gas. It's clear the strategy has worked, as Kinder Morgan now operates the largest natural gas network in North America. Its huge network holds a connection to the most promising natural gas fields in the United States, including the Marcellus and Haynesville shales.
And, it goes without saying that Kinder Morgan is a major player in oil production as well. It's the largest independent transporter of petroleum products in North America. Its strategy has resulted in years of stellar performance. Kinder Morgan Energy Partners' distribution has grown by 13% compounded annually over the last 18 years. Kinder Morgan, through its various entities, has collectively grown into the third-largest energy company in North America with a combined enterprise value of $105 billion.
Growth priorities in 2014 and beyond
Going forward, Kinder Morgan expects more of the same results that propelled it into an oil and gas juggernaut. The company has a five-year backlog of nearly $15 billion worth of currently identified growth projects. These include oil and natural gas pipelines and terminals that have yet to be built. A full 90% of the backlog consists of fee-based pipelines and terminals, which provide for the stable growth that Kinder Morgan looks for.
This will allow for Kinder Morgan to keep increasing its distributions to investors. Kinder Morgan, expects to increase its dividend by 8% this year. The two midstream companies, Kinder Morgan Energy Partners and El Paso expect to raise their distributions by 5% and 2%, respectively, in 2014.
Tap the U.S. energy boom with Kinder Morgan
Each of the Kinder Morgan entities has something different to offer investors. Kinder Morgan Energy Partners and El Paso allow investors access to the high-yielding pipeline businesses. Kinder Morgan, carries a lower yield, but it pays a stock dividend without the hassles of the K-1 statement. No matter your preferred vehicle, energy investors should consider Kinder Morgan in one of its forms.
America's booming oil and gas production will require massive energy infrastructure. That's why Kinder Morgan has such an impressive backlog of projects that will virtually ensure steady growth for years to come. As oil and gas production keeps growing in North America, it needs storing, processing, and transporting. That's why Kinder Morgan offers such a valuable service that results in such strong cash flow.
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Bob Ciura owns shares of Kinder Morgan Energy Partners LP. The Motley Fool recommends El Paso Pipeline Partners LP and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.