Kinder Morgan Crushes Hopes of Dividend Hike for Rest of ’16

  • Second-quarter profit exceeded average estimate of analysts
  • Project backlog declined by 4.3 percent to $13.5 billion

Kinder Morgan Inc. quashed optimism it might raise dividends this year as North America’s biggest pipeline operator seeks joint-venture partners to raise cash for debt payments.

Kinder pledged on Wednesday to pay shareholders a 12.5-cent quarterly dividend next month and signaled that the level of payout won’t increase before the end of 2016. The announcement, which accompanied a second-quarter result that exceeded analysts’ estimates, came just days after Kinder executives told investors on a conference call that they were closing in on a debt target that would enable heftier payouts to stockholders.

After piling up more than $40 billion in debt, the brainchild of Texas billionaire Rich Kinder was forced to severely curtail dividends and scrap billions of dollars in new pipelines to ward off a threatened credit-rating reduction late last year. For the past seven months, the Houston-based company has been repairing its balance sheet and signing up joint-venture partners to shoulder some of its project costs, though Kinder has made no secret of his desire to eventually return to expanding dividend payouts.

Kinder’s Share

As the owner of an 11 percent stake in the company, Rich Kinder stands to gain about $30 million when the next dividend is paid on Aug. 15, according to Bloomberg calculations based on the latest filing on his holdings on March 11. The company’s total bill for next month’s payout will be about $279 million.

The achievement of Kinder’s debt goal “may prove illusive for longer than the market appears to currently believe,” Christopher Sighinolfi, an analyst at Jefferies LLC, said in a note to clients.

Kinder Morgan shares declined 2.9 percent to $21.44 at 9:44 a.m. in New York following Wednesday’s after-market announcements. For the year, the stock has advanced more than 40 percent, almost four times better than the performance of the Alerian MLP Index of 44 energy infrastructure companies.

Kinder Morgan’s backlog of yet-to-be-built projects declined by 4.3 percent to $13.5 billion, according to the statement. The company attributed the reduction to the removal of half the cost of a pipeline after a partner agreed to invest, as well as the placement of a tanker into service.

Payout Outlook

After slashing its dividend by 75 percent in December, Kinder executives said last week that the company’s cash position is improving so quickly that they may soon be able to resume boosting payouts.

If Kinder continues reducing costs and attracting outside capital through joint venture agreements, it may be able to lift annual dividends by 50 percent next year and 67 percent the year after, said Barclays analyst Christine Cho. For this year, Kinder said the annualized payout will be 50 cents, which implies sticking to the current rate through the end of the fourth quarter.

Kinder’s second-quarter net income was $372 million, or 15 cents a share, compared with $333 million, or 15 cents, a year earlier, the company said in a statement Wednesday. The per-share result exceeded the 14-cent average profit estimate of 16 analysts in a Bloomberg survey.

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