The board of Kinder Morgan, Inc. (NYSE:KMI) has announced that it will pay a dividend on the 15th of August, with investors receiving $0.2925 per share. This means the dividend yield will be fairly typical at 4.2%.
This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.
Kinder Morgan’s Payment Could Potentially Have Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, the company wasn’t making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn’t be confident about this continuing.
The next year is set to see EPS grow by 29.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 73% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was $1.76, compared to the most recent full-year payment of $1.17. Doing the maths, this is a decline of about 4.0% per year. Generally, we don’t like to see a dividend that has been declining over time as this can degrade shareholders’ returns and indicate that the company may be running into problems.
Kinder Morgan’s Dividend Might Lack Growth
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It’s encouraging to see that Kinder Morgan has been growing its earnings per share at 77% a year over the past five years. While EPS is growing rapidly, Kinder Morgan paid out a very high 95% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.
The Dividend Could Prove To Be Unreliable
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Kinder Morgan has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don’t think Kinder Morgan is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we’ve picked out 2 warning signs for Kinder Morgan that investors should know about before committing capital to this stock. Is Kinder Morgan not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.