Why Kinder Morgan Inc (NYSE:KMI)’s 2.58% Dividend Is Not A Good Enough Reason To Buy
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Over the past 7 years, Kinder Morgan Inc (NYSE:KMI) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Let’s dig deeper into whether Kinder Morgan should have a place in your portfolio. See our latest analysis for Kinder Morgan
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it paying an annual yield above 75% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has it increased its dividend per share amount over the past?
Does earnings amply cover its dividend payments?
Will it have the ability to keep paying its dividends going forward?
Does Kinder Morgan pass our checks?
Kinder Morgan has a payout ratio of 90.17%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a higher payout ratio of 130.39%, leading to a dividend yield of around 5.42%. In addition to this, EPS should increase to $0.7. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Kinder Morgan as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. In terms of its peers, Kinder Morgan generates a yield of 2.58%, which is on the low-side for oil and gas stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Kinder Morgan for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three essential aspects you should further examine:
1. Future Outlook: What are well-informed industry analysts predicting for KMI’s future growth? Take a look at our free research report of analyst consensus for KMI’s outlook.
2. Valuation: What is KMI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether KMI is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
