Kinder Morgan: Why I'm Betting On This Undervalued Energy Giant

Core Viewpoint - Kinder Morgan (KMI) is positioned as a top income pick for 2024 due to its essential economic role and attractive valuation, despite recent stock price fluctuations [2][8]. Company Overview - Kinder Morgan is a leading U.S. energy midstream company with the largest natural gas transmission network, comprising 70,000 miles of pipelines that transport approximately 40% of U.S. natural gas production [3]. - The company has a working storage capacity of 702 billion cubic feet (bcf), representing about 15% of the total U.S. capacity, with 64% of cash flows derived from natural gas [3]. Financial Performance - KMI's adjusted EPS has nearly doubled from $0.66 in 2016 to an estimated $1.22 for 2024, while the net debt to EBITDA ratio is expected to decrease to 3.9x, one of the lowest levels since 2016 [3][4]. - The company has returned $20 billion to shareholders through dividends and share repurchases, with an estimated $2.6 billion for 2024 [3]. Recent Results - KMI reported a 4% year-over-year decline in distributable cash flow for Q4 2024, attributed to higher interest expenses from a recent acquisition, rather than a fundamental business weakness [4]. - Natural gas transport volumes increased by 5% year-over-year in Q4, driven by higher demand for power generation and industrial customers [4]. Growth Prospects - KMI anticipates a 20% growth in the natural gas market by 2030, with expansion projects planned to support increased LNG exports and industrial demand [4]. - The company projects 15% growth in EPS and 8% growth in distributable cash flow per share for 2024, with potential catalysts including rising crude oil prices [4][6]. Dividend and Valuation - KMI offers an attractive dividend yield of 6.1%, with a 54% DCF-to-Dividend payout ratio and a history of six consecutive years of dividend growth [6]. - The current price-to-cash flow ratio of 6.3x is considered appealing, sitting at the low end of KMI's three-year range [6][7]. Market Position - KMI's EV/EBITDA ratio of 11.6x is competitive compared to peers, indicating a reasonable valuation relative to the industry [7]. - With expectations of 5-7% annual DCF per share growth, KMI is positioned for potential market-beating returns [7][8].