Energy stocks have been very unkind to income investors this year. The dramatic drop in oil prices is causing oil-related companies to slash or eliminate dividends that were once thought to be on solid ground. However, there is one energy company proclaiming that its generous payout is rock-solid, and that's energy infrastructure giant Kinder Morgan . The company's CEO Richard Kinder spent some time on the company's last conference call walking investors through the math, showing that the plunge in oil prices won't cause its dividend any harm.
Source: Kinder Morgan.
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Setting the stage Mr. Kinder started off his comments on the company's dividend by saying:
As he notes, the original plan when the company announced the merger with its MLPs was to pay a generous dividend in 2015 that would grow by 10% per year. Further, that dividend would be on very solid ground as the company expected its cash flows to outpace its dividend payments by more than $2 billion over the next five years. Despite the drop in oil prices, he's still very comfortable with the company's initial outlook:
Kinder notes that oil prices are currently well below the company's initial budget of $70 per barrel in 2015, which will have an impact on the company's cash flow. However, the math still is very much in the company's favor no matter where oil prices ultimately level out, as we'll see in a moment.
Working through the mathHe then works through the math with investors given the company's sensitivity to oil and gas prices by providing the following example:
As Mr. Kinder clearly points out the company's dividend is on rock-solid ground at current oil prices. Further, there is enough excess cash flow to provide a nice cushion should oil prices keep falling.
Investor takeawayKinder reiterated this by closing out his comments on the dividend:
In an environment where so many energy dividends have been taken away or reduced as a result of plunging oil prices, it's nice to see one dividend on solid ground. Kinder Morgan's payout has no risk of being reduced this year, and it should still be growing by 10% per year for the next few years.
The article Kinder Morgan Inc's Dividend Is Rock-Solid Despite Sliding Oil Prices originally appeared on Fool.com.
Matt DiLallo has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan, which means I won't be enjoying Kinder Morgan's dividends just yet. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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