Kinder Morgan Q4’11 earnings – steady & increasing growth

Kinder Morgan announced Q4 2011 earnings after market on Jan 18, 2011. Being one of the top 3 MLPs by size, having the most diverse business, and being one of the best managed MLPs I think its illustrative of what is going on in the MLP sector to look at their earnings. This coming week KMP will also hold their annual investor day. The details of KMP’s earnings can be found here.

At a high level, Kinder Morgan had yet another record quarter and again increased distribution to their limited partners. Distributions increased to $1.16 per unit from $1.13 per unit in the same quarter last year, a 3 percent increase. More importantly, for the full year 2011 KMP distributed $4.61 per unit, beating their $4.60 target and an almost 5% increase over the full year 2010 distribution. For this year, 2012, KMP is targeting a distribution of $4.98 per unit, an almost 8% increase over the 2011 annual distribution. This 2012 outlook does not account for the El Paso acquisition which is expected to be immediately accretive to distributions.

I find that I say the same thing every quarter about KMP, ‘steady as she goes’. These guys continue to perform. They make plans, commit to them, and just execute. No other MLP provides such detailed outlooks and forecasts and then just goes out and nails them. This is very comforting to long term investors. Since inception in 1996 they have missed their distribution target only once. Since 1996 investors have enjoyed a 25% CAGR. Their business continues to become more diverse and steady. Here is a summary I did of their business.

As the table shows, KMP has a very well diversified business that is predominantly fee based and not subject to commodity prices. They do have some commodity exposure to oil prices in their CO2 business but they hedge most of that exposure away for the year. So, how about going forward and what can investors expect in terms of returns going forward?

Based on KMP, KMR, and KMI’s closing prices as of Friday, Jan 20th here are the returns investors can expect going forward excluding the effect of the El Paso and including the effect of the El Paso acquisition which is increasing future Kinder Morgan growth. These returns are calculated using the magic dividend formula which states that total return is equal to dividend yield plus dividend growth plus change in valuation. For this table I’m assuming the change in valuation for this year is zero.
I’m using the post EP numbers as a basis for an investment decision due to the very high probability of the acquisition going through. These are solid returns in any environment but even more so in today’s volatile market and in a market where investors are searching for yield. I continue to prefer KMI , with an almost 17% annual forecasted return, over KMR or KMP for the higher total returns but some investors desire higher current yields and thus would prefer those shares.
In summary, Kinder Morgan continues to execute and is the most stable and diverse MLP in the space.
Disclosure: long KMI

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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