The Best Energy Dividend Stock for a Passive Income Life

IIncome investors are always on the lookout for stocks that can generate consistent dividend income year after year. Dividend stocks offer a great way to put your money to work to generate a steady stream of income. Before investing, however, you should weigh the risks and rewards associated with any action.

Here’s a great dividend-paying stock that not only offers an attractive yield, but its payouts are also reasonably secure.

Strong dividend yield

The stock I am referring to is Kinder Morgan (NYSE: KMI). Kinder Morgan owns or operates approximately 83,000 miles of pipelines in North America. It derives more than 60% of its revenue from gas pipelines, 16% from product pipelines and 13% from storage terminals.

As of January 19, Kinder Morgan shares offered a dividend yield of 6.2%, the sixth highest yield in the S&P500 shares.

Data as of January 19, 2022. Image source: Kinder Morgan.

As of this writing, Kinder Morgan’s stock yield has fallen to 5.6%. Yet, as the chart above shows, very few S&P 500 stocks offer returns above this level.

Income lifetime

In addition to being strong, Kinder Morgan’s performance appears sustainable. Two key factors are supporting the company’s dividend. First, since 2016, Kinder Morgan has funded its capital expenditures and dividend payments with cash generated from its operations.

Capex and self-financed dividends.

Image source: Kinder Morgan.

As shown in the chart above, Kinder Morgan’s cash flow from operations (CFFO) has exceeded its capital expenditures (capex) and dividends combined for every year since 2016. Over the past six years , the company generated $29 billion from CFFO. It paid a total of $11 billion in dividends.

Kinder Morgan has also repaid $8 billion in net debt since 2016. The company has used proceeds from asset sales to pay down debt. This approach of using cash from operations to fund dividend payments and capital expenditures, instead of borrowing funds to do so, has helped the company grow without harming the strength of its balance sheet. . Additionally, the sale of non-core or most profitable assets helped Kinder Morgan reduce debt, without hurting growth too much.

This financial discipline bodes well for the sustainability of Kinder Morgan’s dividend.

The second key factor supporting Kinder Morgan’s long-term dividend growth is its focus on natural gas.

Total world energy demand by fuel.

Based on data from IEA (2021) World Energy Outlook. Image source: Kinder Morgan.

According to the International Energy Agency (IEA) Stated Policy Scenario (STEPS), demand for natural gas continues to grow until 2040. Natural gas could represent 24% of the global energy mix in 2040 The demand for coal continues to decline during this period, while the demand for petroleum products stabilizes after 2030.

This means Kinder Morgan’s assets could find strong demand for decades to come. Additionally, the company is evaluating long-term opportunities in the clean energy segment, including renewable natural gas, carbon capture and hydrogen. In short, Kinder Morgan stocks can provide you with passive income for decades to come.

10 stocks we like better than Kinder Morgan
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They just revealed what they think are the ten best stocks investors can buy right now…and Kinder Morgan wasn’t one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

* Portfolio Advisor Returns as of April 7, 2022

Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool owns and recommends Kinder Morgan. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button