The odds are pretty good that you've never heard of Richard Kinder. He's not really all that well known outside the energy industry. However, inside that industry, he's known as the creator of Kinder Morgan (KMI 3.16%), which is the largest energy infrastructure company in America. It's a company he built from a small investment of a few million dollars into a $140 billion behemoth. That initial investment turned him into a multi-billionaire with a current net worth of $10.9 billion, which makes him the 40th richest American.
The business he created could also create a lot of wealth for you, because his business is a cash generating machine. It generates so much cash that Mr. Kinder believes he can grow the cash dividend paid to Kinder Morgan investors by 10% every year through the end of the decade. As the following slide from a recent investor presentation shows, that's one of the best income growth rates available these days among the large, safe companies we'd want in a retirement account.
Source: Kinder Morgan Investor Presentation.
That growth leads to some very compelling future income. For example, if you were to buy 100 shares of Kinder Morgan stock, it would cost about $3,900 at its current price, including commission. Those 100 shares would send 50 bucks back to its owners every quarter over the next year based on the company's projected quarterly dividend of $0.50 per share. Where things get compelling is when we start to see the 10% income growth through the end of the decade. Based on Kinder Morgan's projections, here's what that would look like.
Source: Kinder Morgan investor presentations. Chart is from the author's calculations.
As that chart shows, within six years Kinder Morgan would have paid over $1,500 in dividends to an investor who owns 100 shares. That's a 40% return from dividends alone. If Kinder Morgan can continue to raise its dividend by 10% every year, it would have produced nearly $3,200 in income within a decade, $11,450 in two decades, and $32,898 over the course of 30 years. While the 10% per year in dividend increases is a very big hurdle, even if the dividend growth rate slowed to 3% per year starting in 2021 this investment would still produce nearly $13,000 in income over the next 30 years.
This is all under the assumption that the income is either spent right away or just sits in a retirement account collecting dust. If we chose to reinvest these dividends back into Kinder Morgan's stock with fairly conservative growth assumptions, we'd end up with something like this:
Note: Assumes 10% dividend growth through 2020 and 3% thereafter. Assumes Kinder Morgan's stock price growth 7% per year and that dividend are reinvested.
What that chart shows is that in 30 years, an investor could end owning 300 shares of Kinder Morgan's stock, worth about $277 per share (assuming the stock doesn't split). Those shares would produce nearly $2,000 of income each year, which is 10 times higher than the first year and works out to a yield of nearly 50% on the initial investment. Meanwhile, the investment in Kinder Morgan stock would then be worth about $85,000 or 20 times the original investment.
This is the power of compound interest. It's what turned Richard Kinder's initial investment in Kinder Morgan into billions of dollars in future wealth. That same power is available to you by investing a few thousand dollars into an incredible compounding machine like Kinder Morgan.
