Energy

Kinder Morgan Tries to Set the Record Straight for 2016

Paul Ausick

Published: December 4, 2015 1:25 pm

Last Updated: January 13, 2020 4:27 pm

Oil and gas pipeline and infrastructure company Kinder Morgan Inc. (NYSE: KMI) said Friday that, after completing its 2016 budget process, it can confirm the company’s previous estimate for 6% to 10% dividend growth over its $2.00 per share target for 2015. The company said that its calculations indicate that Kinder Morgan will generate distributable cash flow of “slightly over” $5 billion in 2016.

The company also said this: “Alternatively, this cash flow can be used to fund some or all of KMI’s equity needs for 2016.”

Kinder Morgan reiterated that it “does not plan” to issue equity in 2016, but that does not preclude another offer similar to the $1.5 billion or so the company raised in a convertible preferred share offer. The company also said that it will be “reviewing the dividend policy and financing plans in the coming days” and that the company will announce the results of its review when the plans are finalized. Kinder Morgan noted that the 2016 plan will be constructed to maintain the company’s investment grade rating, now just one notch above junk at Moody’s.

As we noted Thursday in our review of a downgrade of Kinder Morgan’s stock from Buy to Hold at Argus, access to (cheap) capital is absolutely critical to the company. Here’s what the Argus analysts said:

KMI’s options to fund its hefty five-year project backlog while growing its dividend are shrinking. Issuing additional debt would endanger KMI’s investment-grade credit rating, now at the lowest level assigned by Moody’s. Issuing additional equity would further dilute earnings and compound the negative impact of the falling stock price.

Kinder Morgan’s announcement fueled another sell-off in the stock and it hit a new 52-week low of $16.56, well below the prior low of $19.14 posted Thursday. The stock traded at $17.52, down about 9% for the day, just at the close of Friday’s lunch hour.