Kinder Morgan Stock Has 11% Upside, According to 1 Wall Street Analyst
Truist Securities recently downgraded shares of natural gas pipeline giant Kinder Morgan (NYSE: KMI). Analyst Neal Dingmann cut his rating on the stock from buy to hold while also trimming the price target from $22 to $20 per share.
Despite that downgrade, the analyst still sees about an 11% upside in the pipeline stock from its recent price of just under $18 per share. The stock also offers an attractive 6.3% dividend yield.
A dirt-cheap pipeline stock
While Truist's Dingmann lost some bullish on Kinder Morgan's upside potential, it's easy to see why he believes shares could rise more than 11% from their current level. The stock has a dirt-cheap valuation.
Kinder Morgan projects it will generate $2.26 per share of distributable cash flow (DCF) this year, a jump of 8% year over year. Its DCF forecast rose thanks to its recent acquisition of STX Midstream. At its current price, Kinder Morgan sells for less than 8 times DCF, a proxy for free cash flow. Put another way, it has a free cash flow yield of more than 12%. That's significantly higher than the broader market indexes (the S&P 500 trades at about a 4% free cash flow yield while the Nasdaq-100's is around 3%), implying it's extremely cheap.
Kinder Morgan's dirt-cheap valuation also goes some way to explaining why it can offer such a high dividend yield. The company can easily support that big-time dividend (its payout level will be around 50% of its DCF this year). That's giving it the flexibility to increase its dividend again this year (it expects to raise the dividend by around 2%, its seventh straight year of growth).
While Kinder Morgan might not offer the high price appreciation opportunity of some other stocks, it offers compelling total return potential, driven by its cheap valuation and high dividend yield.
Should you invest $1,000 in Kinder Morgan right now?
Before you buy stock in Kinder Morgan, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Kinder Morgan wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 25, 2024
Matt DiLallo has positions in Kinder Morgan and Truist Financial. The Motley Fool has positions in and recommends Kinder Morgan and Truist Financial. The Motley Fool has a disclosure policy.
Kinder Morgan Stock Has 11% Upside, According to 1 Wall Street Analyst was originally published by The Motley Fool
