Why Kinder Morgan Is About to Come Roaring Back

This high-yield energy stock has struggled lately, but investors are missing the big picture. Here's why Kinder's future will be kinder.
By Siddhi Bajaj ,

A stock that's hit 52-week lows could be a dream for bargain-hunters, but chances are most investors will avoid the stock fearing another a price-cut.

So what, then, should you make of the burgeoning insider interest in Kinder Morgan (KMI) - Get Report ?

This is a stock that's been on a downward spiral for a while now - plunging from $44.71 (April-end) to $23.6 as on date (except for the brief reversal seen in October). Since early 2015, the energy infrastructure major's stock has shed nearly 45% on the back of depressed commodity prices.

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But as mentioned, insiders have eagerly grabbed shares in bulk. The stock is among a group of income investments superbly suited for retirement investors. What is Kinder Morgan's true story? Is the company ready for a glittering return to form? Let's find out.

The Mystery of the Insider Excitement

It's been reported that Michael Morgan, (one of the directors at Kinder Morgan) picked up 126,300 shares of the company, valued at over $3 million. This was close on the heels of similar buys ranging anywhere between 7,500 shares to 500,000 shares by several top company executives from June through November.

In the last twelve months, while the stock was sliding to a reduced valuation, more than 15 million shares of the company were picked up by insiders. Did this happen because the stock was undervalued or did they believe in Kinder Morgan's ability to engineer a robust recovery?

While the answer to this question remains uncertain, Kinder Morgan has more than just dividend growth to boost its potential. In fact, it looks better than the other mid-stream rival Enterprise Products Partners L.P. (which offers an impressive 5.8% yield).

The Power of a Stellar 8.7% Yield

There's no doubt that Kinder Morgan's share price plummet, propelled the yield upswing. But then, the company's pushed dividends over the years. From 14 cents in the first quarter of 2011, pay-outs have moved to 51 cents in the latest quarter.

Moreover, the company's $21.3 billion project backlog (due for investment over the next five years) will largely fuel dividend growth.

The Inorganic But Stable Growth Path

Like many major energy players, Kinder Morgan has faced the low oil price challenge head on. The oil price slump has increased the company's backlog with multi-billion-dollar Carbon Dioxide segment projects, withdrawn at this time.

The Trans Mountain oil sands pipeline expansion in Canada is also under scrutiny, with a severe barrage of opposition from environmentalists. However, with Keystone XL failing to receive support from the White House, the Trans Mountain project has immense possibility for immediate initiation.

While organic growth may have lost a bit of sheen, Kinder Morgan has directed its muscle to growth and development. Acquisitions have consistently increased, ensuring dividend security. In 2013, out of a total invested capital of $10.1 billion, Kinder Morgan spent about $7 billion on acquisitions.

This figure was slightly lower in 2014, with expansion plans absorbing more than half of the $5.8 billion investment. In 2015, the company is expected to equally divide investments between both planks. Since inception, Kinder Morgan's investments in acquisitions (at $25.7 billion) have largely balanced the expansion outflows (at $21.8 billion).

Going forward, a potential partnership where Kinder Morgan could buyout Brookfield Infrastructure Partners' ownership of the Natural Gas Pipeline Company of America, (the company is already in possession of 20%), will bode well for the future. The natural gas pipeline asset is optimizing performance margins, raising the potential of robust cash flows, and thereby, healthy dividends. And time-tested retirement investing methods tell you that high dividend stocks like Kinder are a must for your portfolio.

The Very Experienced Campaigner and the Comeback

This isn't the first fire-fight for Kinder Morgan -- it's has been through turbulence of this nature in the past and has emerged relatively unscathed. For those who think dividend payments run the risk of a sudden reduction, even at the August 2011 levels of $23, the company was rock-solid on quarterly dividend payments. Combine the 8% dividend yield with a consensus price target of $38 -- an upside potential of 50% -- and you have a huge income-creator in your portfolio.

How's that for a comeback story?

Take note: If you don't make the right investment moves now, there won't be any "comeback" for your retirement plans. Are you worried that you'll run out of money as you get older? Download our free special report that shows you exactly how to build a secure nest egg: Your Ultimate Retirement Guide. This report outlines crucial steps you must take now, to ensure your financial future.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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