Kinder Morgan, Inc. (NYSE:KMI) will pay a dividend of US$0.27 on the 15th of November. This makes the dividend yield 6.1%, which will augment investor returns quite nicely.
Kinder Morgan Doesn't Earn Enough To Cover Its Payments
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Kinder Morgan's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to expand by 30.9%. If the dividend continues on its recent course, the payout ratio in 12 months could be 99%, which is a bit high and could start applying pressure to the balance sheet.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from US$1.16 to US$1.08. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.
Kinder Morgan's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Kinder Morgan has grown earnings per share at 25% per year over the past five years. EPS has been growing well, but Kinder Morgan has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kinder Morgan's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Kinder Morgan you should be aware of, and 2 of them are significant. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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