Investing in Kinder Morgan: A Cautionary Tale for Income Seekers
Kinder Morgan’s impressive 5.2% dividend yield and massive scale as a midstream company may attract income-focused investors. However, there’s a crucial backstory to consider before buying into this energy giant. As a toll taker, Kinder Morgan’s business model relies on charging fees for the use of its pipelines, storage, and processing assets. This means that demand for energy, rather than commodity prices, drives its cash flows.
The company’s reliable cash flows support its generous dividend, which has been increased annually since 2017. The investment-grade balance sheet provides further comfort. On the surface, Kinder Morgan appears to be an attractive dividend stock. But scratch beneath the surface, and a different story emerges.
Kinder Morgan’s history of broken dividend promises may deter conservative income investors. In 2015, management announced a planned 6-10% dividend increase, only to slash it by 75% a few months later. Then, in 2020, the company failed to deliver on its promised 25% dividend hike due to pandemic-related uncertainty. These instances of unmet expectations may erode trust in the company’s dividend commitments.
In contrast, competitor Enterprise Products Partners boasts a 7.1% yield, backed by an investment-grade balance sheet and a 26-year streak of distribution increases. If reliability and trust are paramount for your income stream, you may want to explore alternative options in the midstream space.
Before investing in Kinder Morgan, consider the bigger picture. Are you willing to overlook the company’s checkered past in favor of its current dividend yield, or would you rather opt for a more dependable income stream elsewhere? The answer will depend on your individual investment priorities and risk tolerance.
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