5 hours Ago By [email protected] (Matt DiLallo)
Kinder Morgan ( KMI 2.33% ) pays its investors well. At its current share price, the natural gas pipeline giant's dividend yields 4.
3% -- several times higher than the S&P 500 's 1.2% yield. The company has increased its dividend for seven straight years, and management has already stated that it plans to push its payout higher again in 2025.
The pipeline company should have plenty of fuel to keep growing its dividends in the coming years. One factor powering that view is its ability to secure needle-moving expansion projects. Kinder Morgan recently approved another natural gas pipeline expansion.
Here's a look at the growth drivers the company has ahead. Green-lighting the Mississippi Crossing Project Kinder Morgan's Tennessee Gas Pipeline subsidiary recently announced plans to proceed with the Mississippi Crossing Project (aka, the MSX Project ). The company will build a 206-mile pipeline from Greenville, Mississippi, to Butler, Alabama, where it will connect to the existing Tennessee Gas Pipeline system and third-party pipelines.
The new pipeline will initially have the capacity to transport 1.5 billion cubic feet per day of natural gas, and 100% of that capacity has already been secured under long-term transportation agreements with customers. Kinder Morgan expects the project to enter commercial service in November 2028, assuming it receives all the necessary permits.
The company expects to invest $1.4 billion to build the initial project. It's also in discussions with customers to add up to 0.
4 billion cubic feet per day of additional capacity, which would require it to invest more to build the incremental horsepower necessary to move that extra gas through the pipeline. The MSX Project will increase natural gas supplies across markets in the Southeast. That will help meet growing demand in the region while reducing energy costs.
$3.1 billion approved, and more to come The MSX Project is the second major gas pipeline expansion Kinder Morgan has recently approved. Earlier this year, the company and its partner, Southern Company , approved the South System Expansion 4 Project to increase the capacity of Southern Natural Gas' South Line by 1.
2 billion cubic feet per day. (Southern Natural Gas is a joint venture of the two companies.) The companies will invest $3 billion into the project (Kinder Morgan's share is $1.
7 billion), which is also scheduled to enter service in late 2028. This project will also increase natural gas supplies across the Southeast. With those two projects, Kinder Morgan has announced $3.
1 billion worth of investments in major natural gas pipeline expansions this year. It now has about $6.5 billion of capital projects in its backlog that should enter service over the next several years.
That backlog includes several other natural gas-related projects, such as the expansion of its Gulf Coast Express Pipeline (mid-2026 in-service date) and its Gulf Coast Storage Expansion project (first half of 2027). It's also investing capital into projects across its carbon dioxide, terminals, products, and new energy ventures business units. As they come online in the coming years, these projects will supply the company with more cash flow with which it could pay dividends.
"We expect to announce additional projects in the coming months," stated CEO Kim Dang in the press release unveiling the MSX Project. Driving that view are the natural gas industry's robust fundamentals. Forecasters expect gas demand will grow significantly over the next five years, fueled by rising liquid natural gas (LNG) exports, exports to Mexico, and power generation.
Several catalysts are driving this growth, including the push for decarbonization, the electrification of transportation, the reshoring of manufacturing, and the construction of AI data centers. Securing additional projects would enhance and extend Kinder Morgan's growth outlook. The company has ample financial capacity to support this growth.
It generates significant excess free cash flow after paying its high-yielding dividend. It expects to fully fund its $2.3 billion in growth capital spending next year with internally generated cash flow after paying its increased dividend .
In addition, the company has a strong investment-grade balance sheet with meaningful excess borrowing capacity. It's on track to end next year with a leverage ratio of 3.8 , putting it in the lower end of its 3.
5 to 4.5 target range. Lots of fuel to grow Kinder Morgan has lined up several new expansion projects this year, significantly enhancing and extending its growth profile.
The company should deliver steady growth over the next several years, with a big bump coming in late 2028 when it is scheduled to finish its two large-scale gas pipeline expansion projects. This clear growth outlook drives the view that Kinder Morgan should be able to continue increasing its high-yielding dividend for the next several years..
