Kinder Morgan Slashes Dividend Amidst Crumbling Oil Prices

Kinder Morgan Inc. (NYSE: KMI) reported its fourth-quarter financial results after the markets closed on Wednesday. The company had a net loss of $0.29 per Class P share on $3.64 billion in total revenues, compared to consensus estimates from Thomson Reuters that called for $0.18 in EPS on $3.90 billion in revenue. The same period from the previous year had $0.26 in EPS on $3.95 billion in revenue.

Perhaps one of the larger developments in this earnings report was the board of directors slashing the quarterly cash dividend to $0.125 ($0.50 annualized) from the previous level of $0.51 ($2.04 annualized). The cut was first announced in early December.

Ultimately the decision to reduce the dividend was a direct result of the rapid and significant disconnect between the performance of the business and the performance of the stock. Richard D. Kinder, executive chairman, would further comment on this sentiment:

We are pleased with KMI’s business performance for the year especially in light of a tremendously challenging commodity environment, and we are glad to have generated the greatest amount of annual distributable cash flow [DCF] in the company’s history along with a 7 percent increase in our DCF per share year-over-year. However, we were disappointed by KMI’s stock performance, which declined 65 percent during 2015.

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In the fourth quarter, Kinder Morgan had distributable cash flow of $1.233 billion compared to $1.278 billion for the comparable period in 2014. This decrease for the quarter is primarily attributable to a decline in the CO2 segment and higher interest expense, partially offset by increases in the Natural Gas Pipelines and Products Pipelines segments.

In terms of the segments the company reported:

• Natural Gas Pipelines business had segment earnings before tax of $1.098 billion, as compared to $1.057 billion for the same period last year.
• CO2 business had segment earnings of $292 million, down from $369 million for the same period in 2014.
• Terminals business produced segment earnings of $257 million, down 7% from $277 million for the same period in 2014.
• Products Pipelines business had segment earnings of $289 million, up 28% from $225 million for the comparable period in 2014.

In terms of guidance for 2016, Kinder Morgan expects to declare an annual dividend of $0.50 per share, generate approximately $4.9 billion of distributable cash flow available to equity holders and approximately $4.7 billion of distributable cash flow available to common shareholders and generate approximately $3.6 billion of cash flow in excess of its dividend.

On the books the company had cash and cash equivalents totaling $229 million at the end of the fourth quarter compared to $315 million in the same period from the previous year.

Shares of Kinder Morgan closed Wednesday down 4.3% at $12.01, with a consensus analyst price target of $20.93 and a 52-week trading range of $11.20 to $44.71. Following the release of the earnings report, the stock was initially flat at $12.03 in the after-hours trading session.