High dividend yields can be an attractive feature for investors seeking passive income. However, it’s important to note that a high dividend yield can sometimes be a sign of a higher risk profile. Oftentimes, high-yield dividend stocks have weaker financial profiles, which puts their payouts at risk of a reduction if the company experiences a financial setback.
One exception to this trend is Kinder Morgan (KMI), a natural gas pipeline giant that offers a high-yielding dividend of 4.3%. Despite its high yield, Kinder Morgan backs its dividend with a rock-solid financial profile, making it an excellent option for those seeking a safe and secure passive income stream.
Kinder Morgan owns and operates an irreplaceable portfolio of energy infrastructure assets, including pipelines, processing plants, and storage terminals. The majority of its assets produce stable and predictable earnings, with about 64% of its cash flow coming from take-or-pay agreements. This means that Kinder Morgan gets paid a fee regardless of whether the customer utilizes the capacity. Additionally, hedging contracts and fee-based contracts further support its earnings, providing the company with a high level of cash flow visibility.
In terms of financial strength, Kinder Morgan expects to generate $5.9 billion in cash flow from operations this year, which is enough to cover its capital expenditures and expected dividend payments with room to spare. The company also maintains a strong investment-grade-rated balance sheet, with a leverage ratio expected to be 3.8 times by the end of the year.
Despite its already strong financial position, Kinder Morgan continues to invest in growth opportunities to expand its position in the U.S. energy midstream sector. The company is investing $2.3 billion into growth capital projects this year, including natural gas pipeline expansion projects. With a backlog of commercially secured projects totaling $8.1 billion, Kinder Morgan is well-positioned for future growth.
Looking ahead, Kinder Morgan sees significant expansion potential driven by the expected surge in natural gas demand from rising exports and AI data centers. The company’s strong financial profile provides it with the flexibility to capitalize on new expansion opportunities as they arise.
Overall, Kinder Morgan is a low-risk, high-yielding income stream for investors. Its stable cash flow easily covers its dividend payment, and the company has a track record of consistently raising its dividend. For investors seeking an attractive and steadily rising passive income stream, Kinder Morgan is a solid choice.
