In the past, I've explained why I believe Kinder Morgan Inc (KMI -0.86%) is one of the best dividend growth stocks in America, thanks to its $70 billion merger with its three MLPs, Kinder Morgan Energy Partners (NYSE: KMP), Kinder Morgan Management (NYSE: KMR), and El Paso Pipeline Partners (EPB). This is especially true regarding a diversified retiree income portfolio

Today, I'd like to teach an important, but little-known way of analyzing capital-intensive companies like Kinder Morgan. This is a simple yet effective method of analyzing a company's future growth prospects to see if management is backing up its words with actions.

Capital expenditures vs depreciation

  2009 2010 2011 2012 2013 5-Year Total

Capital Expenditures*

3,661 2,105 2,379 1,294 1,352 10,791
Depreciation* 1,806 1,419 1,068 1,056 1,049 6,398
Difference* 1,855 686 1,311 238 303 4,393

Source: S&P Capital IQ. *in millions.

Don't panic -- I'm not going to turn this into an accounting class and bury you in financial minutia. This table actually represents a simple way to compare how much a company is investing in its infrastructure, which, in the case of Kinder Morgan, represents its primary earnings and dividend growth driver.

Capital expenditures, or capex, is simply the amount of money a company is investing in its assets. In the case of Kinder Morgan, that includes things like office buildings, pipelines, processing plants, and storage facilities.

Depreciation is how companies account for the fact that these kinds of assets wear out over time and need to be replaced. For example, if a pipeline costs $1 billion and is expected to last 30 years and require $100 million in maintenance over that time, then the depreciation for that pipeline would be $1.1 billion over 30 years, or $33.3 million per year.

So, what's the big deal about capex compared to depreciation? Simply put, a company like Kinder Morgan, which is dependent on its infrastructure to generate all of its revenues, earnings, and cash flows, and thus its dividends, needs to spend more on capex than it records as depreciation in order to grow.

This table shows that over the last five years, Kinder Morgan has invested 69% more into its business than it has depreciated. 

Why this matters to investors
The large difference between capex and depreciation indicates that Kinder Morgan is in a fast-growth mode. While the difference between these two did decrease sharply in 2012 and 2013, Kinder Morgan is expected to ramp up capex at a furious pace in 2014, with $3.5 billion in new investment, according to previously released guidance.

That 159% increase in investment is due to the company's record backlog of projects, which rose by 5.3% this quarter (a 22.9% annualized growth rate), or $900 billion to $17.9 billion. Given that $1.1 billion in projects were put into service and thus removed from the backlog, this indicates Kinder was able to add $2 billion in new opportunities to its short-medium-term growth pipeline.

This is not surprising given that the company already had a potential backlog of projects of $18 billion that it was considering investing in, bringing its total backlog of future investment opportunities to $35 billion.

$35 billion is just a drop in the bucket
While $35 billion in potential growth projects sounds like a lot -- and is likely to keep Kinder's earnings and dividend growing at a healthy pace for many years to come -- in reality, it's just a drop in the bucket.

That's because $640 billion in new midstream infrastructure is expected to be needed by 2035. Thus, Kinder's total future and potential backlog represents just 5% of the coming midstream infrastructure boom. 

What about falling energy prices?

Brent Crude Oil Spot Price Chart
Brent Crude Oil Spot Price data by YCharts.

Recently, concerns over slowing economic growth around the world, as well as record production from shale oil and gas formations in the U.S., have resulted in oil and gas prices plunging.

While a long-term decline in energy prices would indeed throw the investment thesis for Kinder Morgan into doubt, the fact is, this recent decline in energy prices is likely an overreaction by the energy markets and speculators, as was recently explained by my Foolish colleague Matt DiLallo. 

Rising oil and gas demand is a megatrend likely to increase for decades. For example, according to the U.S. Energy Information Administration (EIA), U.S. gas production is expected to increase through 2040, driven by a projected rise in gas prices to $7.65 per thousand cubic feet.

Source: EIA.

What will likely drive that price increase? Booming demand for gas courtesy of power plants switching to cleaner burning gas from coal (which emits twice the amount of greenhouse gases) and a strong LNG (liquefied natural gas) export trade to nations with far higher gas prices, such as Japan and the EU.

In addition, Kinder is set to benefit from the megatrend of rising oil demand (and likely higher long-term oil prices). This is because 20% of its cash flows in 2014 are derived from CO2 used in enhanced oil recovery.

According to a report by Morgan Stanley and Rystaad Energy, world oil demand in 2035 is expected to increase 15%-26% over today's levels, resulting in an oil price of $125/barrel to $150/barrel.Similarly, the EIA projects that rising demand for oil will result in likely oil prices in 2040 of $145/barrel to $205/barrel.

A long-term increase in the price of oil would increase demand for Kinder Morgan's CO2 pipelines, while rising natural gas prices and supply would produce massive growth for Kinder's midstream infrastructure for decades to come. 

Bottom line
Analyzing a company's capital expenditures compared to its depreciation is a good way of verifying a companies growth prospects. With Kinder Morgan, we see that management is investing heavily in the company's infrastructure, courtesy of its fast-growing project backlog. This backlog is a result of a major energy megatrend that is likely to last decades and result in many years of superior earnings and dividend growth. That, in turn, is why I continue to view Kinder Morgan as one of the best long-term high-yield dividend growth stocks that income investors, and especially retirees, can own at this time.