Kinder Morgan is one of my favorite high-yield dividend growth stocks and a major reason for this is because of how well it's been able to handle the oil crash. Let's look at five key facts from Kinder's recent conference call that show why the company is likely to thrive even in a world of lower energy prices.
Realized energy prices can be very volatile
Energy price volatility is just the name of the game in the oil and gas industr. Times of industry distress help to let truly exceptional companies stand out, and the fact is that Kinder Morgan is still managing strong growth.
Solid fundamental business expansion continues
In addition, CFO Kin Dang made clear that Kinder continues to successfully secure further large scale natural gas transportation contracts.
Kinder's secure future cash flows continue to grow, and ...
To put this accomplishment into perspective, over the Past five quarters Kinder Morgan has locked down additional gas transportation demand equivalent to almost 10% of all current U.S. natural gas production, ensuring substantial additional predictable cash flow for almost the next two decades.
The dividend remains safe
Note that "coverage" means excess distributable cash flow, or DCF, after covering 2015's $2 dividend. This might allow it to potentially beat its 10% dividend growth target -- which Richard Kinder says remains on track -- through 2020.
Kinder investors should be aware, however, that according to Dang, the company's excess DCF isn't evenly generated throughout the year. Rather, Q1 and Q4 usually represent the strongest periods of excess coverage, while Q2 may actually fall short of covering the dividend.
Backlog accounting change explained
Longtime Kinder investors know that the company's growth backlog is one of the most important things to focus on, and this quarter Kinder announced a major accounting change regarding this important metric.
Basically, what this means is that Kinder wanted to improve its transparency by reporting its backlog the same way it calculates its return on investment for potential projects.
Speaking of the backlog, remember that even though the backlog shrank by $500 million over the past two quarters -- because of the removal of $1.685 billion in CO2 oil projects -- these projects have only been delayed and shunted into the company's "shadow backlog," which, according to natural gas President Tom Martin, now stands around $19.2 billion.
Thus, Kinder Morgan's total backlog totals approximately $37.5 billion, which represents 41 quarters' worth of growth investment at its current capex spending rate.
Bottom line: The oil crash hurts Kinder in the short term, but long-term growth remains intact
The fact that Kinder Morgan is able to navigate the worst oil crash since the financial crisis while still generating substantial excess DCF and growing its long-term contract secured cash flow shows the superior nature of its business model, and why it remains one of America's best dividend growth stocks.
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The article High-Yield Oil Dividend Stocks: 5 Facts That Will Make Kinder Morgan Investors Cheer originally appeared on Fool.com.
Adam Galas has no position in any stocks mentioned, however, he does lead The Grand Adventure dividend project, which owns Kinder Morgan in several portfolios. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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