Kinder Morgan Announces $1.4 Billion Pipeline Project to Support Dividend Growth

Kinder Morgan (KMI) is a prominent player in the natural gas pipeline sector that is rewarding its investors with a notable dividend yield of 4.3%. This yield is significantly higher than the average of 1.2% found in the S&P 500 index. Kinder Morgan has managed to increase its dividend consistently over the past seven years, with plans for further increases expected in 2025.

The company appears well-positioned to continue growing its dividends due to its robust expansion projects. Recently, Kinder Morgan approved a significant project aimed at enhancing its pipeline capacity.

Launch of the Mississippi Crossing Project

Kinder Morgan's subsidiary, Tennessee Gas Pipeline, has initiated plans for the Mississippi Crossing Project (also called the MSX Project). This project will involve constructing a 206-mile pipeline extending from Greenville, Mississippi, to Butler, Alabama. This new pipeline will connect to the already established Tennessee Gas Pipeline system and other pipelines managed by third parties. Initially, the pipeline will have the capacity to transport 1.5 billion cubic feet of natural gas daily. Remarkably, this entire capacity has already been contracted out under long-term agreements with customers. The project is anticipated to start commercial operations by November 2028, provided it secures the necessary permits.

Kinder Morgan plans to invest approximately $1.4 billion in this initial phase. In addition, the company is in talks with customers about potentially adding 0.4 billion cubic feet per day of capacity, which would incur further investment for the necessary enhancements to the pipeline.

The MSX Project is set to boost the supply of natural gas in southeastern markets. This increase in supply aims to accommodate the rising demand in the area while helping to lower overall energy costs.

Additional Expansion Plans and Investments

The approval of the MSX Project follows another substantial gas pipeline expansion earlier this year. Kinder Morgan, in collaboration with Southern Company, has also greenlit the South System Expansion 4 Project, which will elevate the capacity of Southern Natural Gas' South Line by 1.2 billion cubic feet per day. The total investment for this expansion is $3 billion, with Kinder Morgan's share amounting to $1.7 billion. This project is similarly slated to become operational in late 2028, further enhancing gas supplies across the Southeast.

With these two major projects, Kinder Morgan has committed around $3.1 billion to significant natural gas pipeline expansions in the current year. Furthermore, the company possesses a pipeline of capital projects worth about $6.5 billion that are expected to come online in the upcoming years. This portfolio includes various projects aimed at improving its Gulf Coast Express Pipeline and Gulf Coast Storage Expansion, among others. As these projects are completed, they will create additional cash flow, which can be used to increase dividends.

CEO Kim Dang emphasized in a recent press release that more projects are expected to be announced soon. The solid fundamentals of the natural gas industry support this sentiment. Industry experts project substantial growth in natural gas demand over the next five years, driven by factors such as increased liquid natural gas (LNG) exports, exports to Mexico, and a rise in power generation. Various promoting factors for this growth include the shift toward decarbonization, electrification in transportation, the reshoring of manufacturing processes, and the establishment of AI data centers. Securing more projects could significantly enhance Kinder Morgan's growth potential.

The company is financially well-equipped to support its expansion plans. It generates ample excess free cash flow after meeting its dividend obligations. For the upcoming year, Kinder Morgan expects that its internally generated cash flow will cover the costs of its planned $2.3 billion in growth capital spending after accounting for the expected increase in dividends. Additionally, the company boasts a strong investment-grade balance sheet, providing it with considerable borrowing capacity. Its projected leverage ratio for the end of next year is estimated to be 3.8, which falls within its target range of 3.5 to 4.5.

Solid Growth Ahead

Kinder Morgan's array of new expansion projects this year has significantly elevated its growth potential. The company is on track to achieve steady growth in the coming years, particularly with a notable increase expected when both large-scale gas pipeline expansion projects are completed in late 2028. This optimistic growth trajectory suggests that Kinder Morgan is likely to keep raising its attractive dividend for several more years to come.

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