Kinder Morgan Energy Partners (KMP) is the largest midstream company in North America. The company has massive growth potential due to the increasing production of both oil and natural gas in the US and Canada. Kinder Morgan Energy Partners currently offers a $1.30 per unit quarterly distribution and yields about 5.90%.
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Kinder Morgan Energy Partners is part of the Kinder Morgan family of companies with a combined enterprise value of over $115B. Kinder Morgan, Inc (KMI) is Kinder Morgan Energy Partners' general partner and has incentive distribution rights and owns about 10% of the partnership. Another way to own Kinder Morgan Energy Partners is via Kinder Morgan Management (KMR), whose shares are pari passu with Kinder Morgan Energy Partners and has an equal distribution but pays its dividend in additional shares instead of cash. This in effects acts as a dividend reinvest program.
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Kinder Morgan Energy Partners and its sister companies have some of the most stable fee-based assets out there. The combined companies own and/or operate nearly 80,000 miles of pipeline and 180 terminals. Kinder Morgan pipelines are a crucial link of the US energy infrastructure as they are the largest transporter of natural gas, petroleum products, and CO2. Kinder Morgan pipelines are connected to major resource plays including but not limited to the Marcellus shale, Eagle Ford, and the Canadian oil sands.
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While somewhat natural gas reliant, Kinder Morgan Energy Partners' cash flow is relatively diversified. The vast majority of Kinder M! organ Energy Partners adjusted EBITDA is fee-based. Natural gas pipelines and related services accounted for 43% of cash flow as of Q1 2013. Petroleum product pipelines and terminals each accounted for about 15% of cash flow as of Q1 2013. Note that Kinder Morgan Energy Partners does have some production exposure at about 18% of cash flow, with most of this due to oil production exposure.
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Kinder Morgan Energy Partners' Canadian segment, while small at about 3% of cash flow, represents the largest area for potential organic growth. Over the next 5 years, Kinder Morgan Energy Partners expects to invest nearly $5.4B in Kinder Morgan Canada, or about 40% of its total organic capex budget of around $13.6B. Natural gas pipelines will also be expanded at a tune of $3.5B. Do note that Kinder Morgan Energy Partners organic capex budget does not include any dropdowns from KMI or acquisitions.
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Speaking of acquisitions, Kinder Morgan Energy Partners recently announced that it has raised its projected annual distributions to $5.33 per unit, up from $5.28 per unit. This increase is primarily due to increased benefits related to the recently completed Copano acquisition. This increased benefit also affected Kinder Morgan Inc, which also raised its projected annual dividend to $1.60 per share, up from $1.57 per share. These assets have allowed Kinder Morgan Energy Partners to broaden its midstream network in crucial, energy rich areas and has increased its customer base. The accretive effects of this acquisition are also expected to increase in 2014 and 2015.
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Conclusion
Few stocks have offered the combination of both income and growth shown by Kinder Morgan Energy Partners. Since 1996, Kinder Morgan Energy Partners has grown its distribution at a CAGR of over 13%. In terms of total return, Kinder Morgan Energy Partners has provided its unitholders with a CAGR of over 25% since 1996 when including reinvested distributions.
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Do note that Kinder Morgan Energy Partners is a frequent issuer of units as this is its primary means of raising capital. Secondaries from either Kinder Morgan Energy Partners or Kinder Morgan Management are usually decent buying opportunities. Kinder Morgan Energy Partners has been a solid income play for many years. While it has recently underperformed, it is still a stock I would buy on any weakness.
Disclaimer: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Please do your own due diligence before making any investment decision.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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