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4 Things to Watch When Kinder Morgan Reports Q1 Results

Matthew DiLallo, The Motley Fool

Kinder Morgan (NYSE: KMI) has been riding high this year. Shares of the pipeline giant have already rebounded about 30% thanks to a rally in the oil market and its strong finish to 2018. That momentum could continue later this week, when the company reports its first-quarter results. Here are four things to keep an eye on when reviewing that report.

1. See if its results matched the budget

Kinder Morgan put out its 2019 guidance last December. At the time, the company anticipated that it would generate about $5 billion, or $2.20 per share, in cash flow, which would surpass the previous record set in 2015. The pipeline giant expects to earn 27% of that amount during the first quarter. That suggests it should report $1.35 billion, or $0.59 per share, this quarter. Investors should see if its results matched this outlook. If not, they should take a closer look at what caused the company to miss and whether that's a one-time blip or part of a deeper, longer-term issue.

A person in a hard hat standing near a stack of pipelines

Image source: Getty Images.

2. Check if it kept its promise to return more cash to investors

Kinder Morgan expects to send back a larger portion of its cash flow to shareholders this year. It has repeatedly promised to boost 2019's dividend by 25% from the current level. The company has also been returning additional money to shareholders via its $2 billion stock buyback program. The company has already repurchased $525 million in shares since December of 2017. Given the company's stated desire to return more money to investors, they should see if it does declare that 25% increase as well as if it repurchased any more shares during the first quarter.

3. Look for a decision on Kinder Morgan Canada

Kinder Morgan completed an initial public offering of its Canadian assets, Kinder Morgan Canada (TSX: KML), in mid-2017 to help fund the expansion of the Trans Mountain Pipeline. However, the company has since sold that pipeline to the Government of Canada. Because of that, it has been exploring options for its publicly traded Canadian subsidiary.

The company's management stated on the fourth-quarter call that they hope to have their review complete and a direction announced when Kinder Morgan reports its first-quarter results. Given that expectation, investors should look at what the company intends on doing with that entity. Among the options it's considering are selling Kinder Morgan Canada or merging it with another company, taking it private, or leaving it public. A sale could give Kinder Morgan more cash to buy back stock, while a merger could enhance its growth prospects.

Pipelines laid out for construction at sunset

Image source: Getty Images.

4. Scan for any progress on adding new expansion projects

Kinder Morgan ended last year with $5.7 billion of growth projects under way, which should drive cash flow higher over the next two years as they enter service. Meanwhile, the company believes it should be able to lock up between $2 billion and $3 billion of additional growth projects per year. Ideally, it will have added a few hundred million dollars in projects to its backlog during the quarter.

While the company recently walked away from one opportunity, it has several others in the pipeline. In January, the company agreed to jointly develop a solution to increase oil pipeline capacity in the Rockies with Tallgrass Energy (NYSE: TGE). Kinder Morgan would contribute two underutilized natural gas pipelines to the venture, while Tallgrass Energy would chip in its Pony Express Pipeline. Investors should look for progress on that project since it could also enable Kinder Morgan to expand its Double H pipeline in North Dakota. The company's success in securing these and other projects would give it the fuel to continue growing cash flow and its dividend at a healthy rate beyond 2020.

Lots to monitor this quarter

Kinder Morgan could have plenty of good things to say when it reports first-quarter results later this week. Ideally, its cash flow matches expectations, it follows through with its promised dividend increase, formalizes its plan for Kinder Morgan Canada, and adds more expansion projects to its backlog. Success in all four areas could give the company's stock more fuel to keep rallying.

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Matthew DiLallo owns shares of Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.