Lastly, Kinder Morgan has been finding areas to expand the services it offers. In June, management announced its plan to enter into the business of owning, leasing, and acquiring natural resource properties. In this new business, Kinder Morgan will lease its properties to current customers to extract the resources in return for royalty payments. This is a very strategic, win-win situation, because Kinder Morgan can use its existing relationships to lease the properties and this will cause the client increase their usage of Kinder Morgan’s storage facilities.
Fiscal 2013 expectations
In its second quarter report, management increased its 2013 outlook citing the Copano acquisition as a driver of continued growth. The new expectations call for $5.4 billion in earnings with cash distributions reaching $5.33 per unit. These new numbers represent a 7% increase from prior projections.
Distributable cash flow
Kinder Morgan reported $505 million in distributable cash flow on July 17, up a strong 38% year-over-year. This distributable cash flow is a measure of the company’s ability to pay dividends to its shareholders. After this large increase, the company raised its quarterly dividend to $1.32 per share, which represents an annual yield of about 6.4%. The most incredible statistic to note is that its dividend has been raised 48 times since 1997. Needless to say, this is one of the most dynamic dividend payers you will find.
Industry competitors
Plains All American Pipeline (NYSE:PAA) and Energy Transfer Partners LP (NYSE:ETP) are two of Kinder Morgan’s quality competitors.
| Company | Kinder Morgan | Plains All American | Energy Transfer Partners LP (NYSE:ETP) |
| Market Cap | $35.78 billion | $17.97 billion | $18.28 billion |
| Miles of pipeline | 50,000+ | 16,500+ | 47,000+ |
| Return on Assets | 5.01% | 4.05% | 6.27% |
| Dividend Yield | 6.4% | 4.5% | 7% |
| YTD Perfomance | -1.51% | 11.04% | +14.93% |
(Source: Yahoo! Finance)
Plains All American Pipeline (NYSE:PAA) and Energy Transfer Partners LP (NYSE:ETP) are very strong companies. Both have thousands of miles of pipeline and have safety in earnings due to fee-based services, along with high dividends; however, Kinder Morgan’s underperformance year-to-date gives it much more upside going forward. Also, although Energy Transfer Partners LP (NYSE:ETP) has the highest yield, it has not raised the dividend since 2008. Kinder Morgan’s has been raised over 48 times since 1997 and Plains All American Pipeline (NYSE:PAA) has had increases for 14 consecutive years.
The bottom line
Master limited partnerships are in a great position to outperform the overall market for the rest of the year and throughout 2014. The group has been beaten down from their highs on taper talks and rising interest rates, but they have outperformed in this situation before. Kinder Morgan is the strongest company in the space and will provide high dividend income along with any price appreciation.
The article Transport Your Way to Profits with Kinder Morgan Energy Partners originally appeared on Fool.com is written by Joseph Solitro.
Joseph Solitro has has a long position in Kinder Morgan Energy Partners. The Motley Fool has no position in any of the stocks mentioned.
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