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Is Kinder Morgan's Dividend Growth Trajectory in Trouble?

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Houston, TX-based oil and gas pipeline company, Kinder Morgan, Inc. 's KMI dividend growth trajectory has come under pressure owing to continued weakness in commodity prices. Per Citigroup Inc.'s C analyst Faisel Khan, the pipeline giant would have to reduce its dividend growth projection for the longer run if it wants to retain its current dividend coverage ratio of 1.1 times distributable cash flow.

Khan gave the low-down on the dividend trajectory in an earnings preview on the company, on Monday. However, he was optimistic about the third quarter which he expects to show improvement sequentially.

In July, Kinder Morgan raised its quarterly dividend by 14% to 49 cents a share ($1.96 a share annualized) from 43 cents ($1.72 a share annualized) paid in the second quarter of 2014. The dividend was paid on Aug 14, to shareholders of record as of Jul 31. The company is targeting an annual dividend of $2.00 per share for 2015. This represents an increase of approximately 15% over the dividend of $1.74 declared in 2014. Kinder Morgan is set to report third-quarter 2015 results on Oct 21.

Kinder Morgan is the largest energy infrastructure company in North America. It owns an interest in or operates approximately 84,000 miles of pipelines and 165 terminals. The company's pipelines transport natural gas, gasoline, crude oil, CO2 and other products. Additionally, the company's terminals store petroleum products and chemicals, and handle bulk materials like coal and petroleum coke. Kinder Morgan is the largest midstream and the third-largest energy company in North America with an enterprise value of more than $110 billion.

During the second quarter of 2015, the earnings of Kinder Morgan's three segments - natural gas pipelines, products pipelines and terminals - improved on an annual basis buoyed by higher volumes in most of its businesses.

We believe that gas infrastructure opportunities are limited to the near-to-medium term, given the low basis differentials and reduced dry gas drilling. The only positive we see for the natural gas infrastructure is the Marcellus shale development. Also, the ongoing tepid outlook for crude would affect the energy giant. The overall market is however still jittery purely due to a declining rig count, weak Chinese demand and soft jobs numbers in the domestic space. Also, the threat of a White House veto is hanging over the lifting of the oil export ban.

Currently, Kinder Morgan carries a Zacks Rank #4 (Sell). Some better-ranked players in the energy space are Callon Petroleum Company CPE and Matador Resources Company MTDR . Both these stocks carry a Zacks Rank #2 (Buy).

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CITIGROUP INC (C): Free Stock Analysis Report

KINDER MORGAN (KMI): Free Stock Analysis Report

MATADOR RESOURC (MTDR): Free Stock Analysis Report

CALLON PETE-DEL (CPE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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