Kinder Morgan's (NYSE: KMI) dry spell has come to an end. The natural gas pipeline company had struggled to grow in recent years because of headwinds from expiring contracts. However, those headwinds have given way to new growth tailwinds.
That shift was abundantly clear in the company's fourth-quarter earnings report. It reported strong earnings growth and unveiled another major new expansion project. With a burgeoning backlog, the natural gas pipeline stock has plenty of fuel to grow at a healthy rate over the next several years.
An exceptional end to a strong year
Kinder Morgan reported adjusted earnings of $0.32 per share for the fourth quarter, a 14% increase from the prior-year period. Meanwhile, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 7% to over $2 billion. That pushed its adjusted earnings up by 7% per share for the full year, while its adjusted EBITDA increased 5% to more than $7.9 billion. That ended a multiyear growth drought where its EBITDA had flattened out at $7.5 billion after adjusting for asset sales and other items.
The company got an earnings boost from three of its four operating segments during the fourth quarter:
Data source: Kinder Morgan. Chart by author.
The company's natural gas pipeline segment did most of the heavy lifting. Its earnings were up 8% year over year, fueled by higher contributions from its Texas Intrastate system, the acquisition of STX Midstream, and expansion projects on the Tennessee Gas Pipeline.
The products pipelines segment grew its earnings by 9%, driven mainly by higher rates. Meanwhile, earnings from the terminals segment increased by 6%, largely because of its Jones Act tanker fleet, which benefited from higher rates. Those growth drivers offset the 5% decline in Kinder Morgan's carbon dioxide business, mainly because of lower volumes.
The company produced $1.5 billion in cash flow from operations during the quarter, fully covering capital spending of $772 million and dividend payments of $642 million with $96 million of room to spare. Kinder Morgan also produced excess free cash flow of $449 million after capital spending and dividend payments for the full year.
Adding a lot more fuel to its growth engine
Kinder Morgan expects to continue growing in 2025. Its current outlook is that its adjusted earnings will rise 10% to $1.27 per share. Meanwhile, it sees its adjusted EBITDA increasing 4% to $8.3 billion. That gave it the confidence to plan for another 2% dividend increase for this year. Recently completed expansion projects will be the main factor driving its growth. Its outlook doesn't currently include contributions from its pending $640 million acquisition of a natural gas gathering and processing system in North Dakota that should close in the first quarter.
The company should have plenty of fuel to continue growing at a healthy rate over the next few years. It ended the fourth quarter with $8.1 billion of expansion projects in the backlog. That's a 60% increase from the third quarter.
Kinder Morgan secured three large-scale natural gas pipeline expansion projects last year, representing $5 billion of future investment. The most recent addition is the Trident Intrastate Pipeline Project. The 216-mile pipeline will transport 1.5 billion cubic feet of natural gas per day from Katy, Texas, to the liquefied natural gas (LNG) and industrial corridor near Port Authur, Texas. It expects to complete that project in the first quarter of 2027.
Kinder Morgan is also investing $1.6 billion into the Mississippi Crossing project. That's an increase from its initial $1.4 billion estimate after the company secured additional capacity contracts. It's now building 2.1 billion cubic feet of capacity, which it expects will enter commercial service in 2028. Kinder Morgan is also building the South System Expansion 4 project in two phases. It will invest $1.7 billion to add 1.2 billion of capacity that will enter service in the fourth quarter of 2028 and the fourth quarter of 2029, respectively. In addition, the company has several smaller-scale projects under construction that it expects to finish over the next couple of years.
"These projects are all progressing and are expected to contribute to significant future growth once in service," stated CEO Kim Dang in the fourth-quarter earnings press release. They should give Kinder Morgan the fuel to grow its earnings and dividend through the end of the decade.
Growth mode engaged
Kinder Morgan has gotten back on a growth trajectory this year. That should continue for the foreseeable future, given all the expansion projects it has coming down the pipeline. Those projects position the company to deliver significant earnings growth, which should provide it with the fuel to continue increasing its high-yielding dividend. These features make Kinder Morgan an attractive investment opportunity for those seeking growth and income.
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