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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Kinder Morgan, Inc. (NYSE:KMI) is about to go ex-dividend in just 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Kinder Morgan's shares before the 30th of July in order to be eligible for the dividend, which will be paid on the 16th of August.
The company's next dividend payment will be US$0.27 per share. Last year, in total, the company distributed US$1.08 to shareholders. Last year's total dividend payments show that Kinder Morgan has a trailing yield of 6.2% on the current share price of $17.37. If you buy this business for its dividend, you should have an idea of whether Kinder Morgan's dividend is reliable and sustainable. As a result, readers should always check whether Kinder Morgan has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kinder Morgan distributed an unsustainably high 142% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while Kinder Morgan's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Kinder Morgan's earnings have been skyrocketing, up 51% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kinder Morgan's dividend payments per share have declined at 0.7% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Has Kinder Morgan got what it takes to maintain its dividend payments? Kinder Morgan has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
With that being said, if dividends aren't your biggest concern with Kinder Morgan, you should know about the other risks facing this business. To help with this, we've discovered 3 warning signs for Kinder Morgan (2 are a bit unpleasant!) that you ought to be aware of before buying the shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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