Despite recent turbulence in the energy industry, Kinder Morgan (NYSE: KMI) remains a buy.

While the prices of energy producers’ products, especially natural gas producers, have fallen substantially from their post-pandemic highs, demand for natural gas remains high.

This position puts Kinder Morgan in command of cash flow and dividends, which is good news for income investors.

When compared to S&P 500 firms, it is trading at 16X earnings. When compared to the metric that matters, distributable cash flow, that multiple falls to around 8X, and it pays a 6% dividend.

6% is more than three times the average S&P 500 yield; it’s much over what the index could consider “high yield,” and it’s a steadily expanding distribution. What more could a passive income investor ask for?

Richard D. Kinder, Executive Chairman, stated,

Our company finished the year strong with another great quarter. We earned strong earnings and dividend coverage for the current quarter. Company shareholders continue to benefit from our capital-efficient business model, which achieves our time-tested goals of maintaining a strong investment-grade balance sheet, internally funding expansion opportunities, paying an attractive and growing dividend, and repurchasing our shares on an opportunistic basis.

Kinder Morgan Outperformed Earnings Expectations

Kinder Morgan published a mixed fourth-quarter earnings report, but the essential news is usually in the details, not the headlines.

The company reported $4.58 billion in revenue, a 3.4% increase over the previous year, although it fell short of the average projection due to dropping natural gas prices.

The key thing here is that margins have expanded as a result of corporate efforts, the natural gas spread, and share repurchases.

The company’s net income climbed by 5.1%, distributable cash flow increased by 11.3%, and adjusted earnings increased by 16%, all of which outpaced top-line growth, and exceeded consensus projections.

This is fantastic news for profitability and positions the company for a double tailwind if natural gas prices continue to rise.

Kinder Morgan Earnings Guidance

Despite the top-line downturn in Q4, Kinder Morgan reiterated its profitability and distributable cash flow outlook.

The business expects to earn $1.12 per share in adjusted earnings, which is in line with the consensus numbers and to pay $1.13 in dividends.

The dividend rise projection is a 2% increase over the 2021 term, and these projections may be conservative. The business anticipates natural gas consumption to quadruple in “the coming years,” which will be a significant tailwind for sales, profits, and distributable cash flow.

Kinder Morgan Increases Returns on Capital

Kinder Morgan is in the natural gas distribution business.

Nonetheless, its business returns capital to shareholders through dividends and share repurchases.

The company stock is yielding more than 6.0% at the time of the Q4 data release, and a distribution increase is expected.

At first glance, the payout ratio appears to be problematic, because it is close to 100%, but when compared to the DCF, it is reduced to around 50%.

In terms of share repurchases, the business increased its allotment by $1 billion to $3 billion, leaving slightly more than $2.0 billion to be spent in calendar 2023. This is worth around 5% of the market value and still boosts price activity.

The Technical Situation: Kinder Morgan Could Burst at Any Time

Despite exceeding pre-pandemic revenue, earnings, and dividend levels, Kinder Morgan shares are trading in a narrow range below those levels. In this light, KMI shares should be trading at or near $22, representing a near 25% gain for investors.

That aim is slightly higher than the analyst average, but the consensus estimate is trending higher and may rise again, now that the fourth-quarter numbers are in.

The market’s next big barrier is at $19.30; a move above there would be bullish. and might carry the stock to $21 or higher.

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