Kinder Morgan Announces an Additional $1.4 Billion Investment to Boost its Over 4% Dividend Yield Remuneration
Kinder Morgan (KMI 0.66%) maintains its reputation for rewarding investors generously. Currently, the natural gas pipeline colossus' dividend stands at 4.3%, significantly surpassing the S&P 500's 1.2% yield. The firm has consecutively boosted its dividend for seven years, with plans to escalate it higher in 2025, as announced by its management.
The pipeline company is equipped with the resources to sustain its dividend growth in the upcoming years. One contributing factor is its ability to secure significant expansion projects. Recently, Kinder Morgan approved another expansion of its natural gas pipeline. Let's explore the growth catalysts for the company.
Greenlighting the Mississippi Crossing Project
Kinder Morgan's Tennessee Gas Pipeline subsidiary announced intentions to proceed with the Mississippi Crossing Project (known as the MSX Project). The proposed pipeline, spanning 206 miles from Greenville, Mississippi, to Butler, Alabama, will connect with Kinder Morgan's existing pipeline system and third-party pipelines upon completion. Initially, the pipeline will have a capacity of 1.5 billion cubic feet per day of natural gas. Remarkably, 100% of this capacity has already been secured through long-term transportation agreements with customers. Kinder Morgan anticipates that the project will become operational by November 2028, provided all necessary permits are obtained.
The company will invest $1.4 billion in the initial project construction. Furthermore, discussions are underway with customers to possibly add up to 0.4 billion cubic feet per day of additional capacity, which would necessitate an increase in investment to accommodate the necessary horsepower for moving the additional gas through the pipeline.
The MSX Project is expected to boost natural gas supplies in Southeastern markets, facilitating the satisfaction of growing demand in the region while lowering energy costs.
$3.1 billion supported, with more to follow
The MSX Project represents the second major gas pipeline expansion that Kinder Morgan has recently approved. In the beginning of the year, the company and its partner, Southern Company, approved the South System Expansion 4 Project for augmenting Southern Natural Gas' South Line capacity by 1.2 billion cubic feet per day. (Southern Natural Gas is a joint venture between the two companies.) The companies will invest $3 billion into the project (with Kinder Morgan contributing $1.7 billion), which is also slated for a late 2028 entry into service. Similarly, this project will augment natural gas supplies in the Southeastern region.
With these two projects, Kinder Morgan has declared $3.1 billion in investments in significant natural gas pipeline expansions this year. It currently has a backlog of approximately $6.5 billion worth of capital projects that are expected to commence operation in the coming years. This backlog encompasses several other natural gas-related projects, including the expansion of its Gulf Coast Express Pipeline (expected to commence service in mid-2026) and its Gulf Coast Storage Expansion project (anticipated launch date in the first half of 2027). Kinder Morgan is also investing capital in projects across its carbon dioxide, terminals, products, and new energy ventures business units. As these projects come onstream in the forthcoming years, they will generate extra cash flow for the company, which it could potentially utilize to pay dividends.
"We expect to unveil additional projects in the coming months," declared CEO Kim Dang in the press release announcing the MSX Project. These expectations are influenced by the robust fundamentals of the natural gas industry. Analysts project gas demand to increase significantly in the next five years, due to rising liquid natural gas (LNG) exports, exports to Mexico, and power generation. Various drivers are responsible for this growth, including the push for decarbonization, the electrification of transportation, the reshoring of manufacturing, and the construction of AI data centers. Securing additional projects would augment and prolong Kinder Morgan's growth outlook.
The company possesses ample financial capacity to support this growth. It consistently generates significant excess free cash flow even after paying its high-yielding dividend. It is projected to fully fund its $2.3 billion in growth capital spending next year solely through internally-generated cash flow, following dividend increases. Moreover, the company boasts a strong investment-grade balance sheet with substantial excess borrowing capacity. It is on course to end the next year with a leverage ratio of 3.8, placing it within the lower end of its target range of 3.5 to 4.5.
Plenty of fuel for growth
Kinder Morgan has lined up numerous new expansion projects this year, significantly expanding and extending its growth outlook. The company is expected to deliver steady growth over the following several years, with a significant increase projected for late 2028, when it is scheduled to complete its two large-scale gas pipeline expansion projects. This clear growth outlook lends credence to the belief that Kinder Morgan will be able to continue elevating its high-yielding dividend for the foreseeable future.
The financial resources obtained from these expansion projects will primarily be used to fund Kinder Morgan's dividend payments. With the expected operational dates of these projects in 2028, investors can anticipate further dividend increases in the coming years.
Kinder Morgan's robust financial health, including its high-yielding dividend, makes it an attractive investment opportunity for those interested in the finance and investing sectors, specifically in the natural gas industry.
