Artificial Intelligence (AI) and More Give Kinder Morgan a Robust Backlog. Is the Stock a Buy?

Kinder Morgan declared a dividend of $0.2875 per share, a 2% increase compared to a year ago. Its forward yield is about 3.8%. For the year, it generated free cash flow of after dividend payments of $449 million, so the dividend is well covered.

The company ended the year with leverage (net debt divided by trailing-12-month adjusted EBITDA) of 4 times. That is within the typical 3 times to 4.5 times range for midstream companies, and its own leverage target of 3.5 times to 4.5 times.

Looking ahead, Kinder Morgan forecasts a 4% increase in adjusted EBITDA to $8.3 billion and a 10% jump in adjusted EPS to $1.27. It is looking to reduce its leverage to 3.8 times by year-end while increasing its dividend by 2% to $1.17 for the year. The guidance does not include its recently announced $640 million Outrigger Energy II acquisition to expand its footprint in the Bakken oil formation. It said the acquisition was being done at a multiple of 8 times 2025 expected EBITDA, which would be about $80 billion if it owned it for the entire year.

Moving forward, Kinder Morgan plans to now spend $2.5 billion a year in growth capex over the next several years, up from a prior budget of $2 billion.

Kinder Morgan’s Q4 results and guidance were generally solid, but it is its strong project backlog and expected return on these projects that is exciting. The industry is expecting huge natural gas demand over the next several years, and Kinder Morgan is well positioned to take advantage of these increased volumes. In addition to increasing demand in the in the U.S. stemming from AI data centers, there is also huge demand to export natural gas to Mexico and to ship it overseas as well.

Kinder Morgan has strong ties to the Texas utility market and also has pipelines near Abilene, Texas, which will be the first data center site of the proposed $500 billion Stargate AI data center project. As such, it is in a good spot to be an AI winner, as Texas appears to be at the heart of the AI data center buildout given its proximity to cheap associated gas coming from the Permian basin. While the market was roiled Monday by DeepSeek, a new Chinese AI player whose model is said to be very cheap to train, there is still much not known about the accuracy of that claim, and I would not see this derailing U.S. AI projects based on speculation.

From a valuation perspective, Kinder Morgan trades at an enterprise value-to-EBITDA ratio of just over 11 times. That’s below where midstream companies have traded at in the past and is an attractive valuation given the growth opportunities in front of the company. As such, Kinder Morgan is a solid stock to consider at current levels.

Before you buy stock in Kinder Morgan, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Kinder Morgan wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $725,740!*

Now, it’s worth noting Stock Advisor’s total average return is 894% — a market-crushing outperformance compared to 175% for the S&P 500. Don’t miss out on the latest top 10 list.

Learn more »

*Stock Advisor returns as of January 27, 2025

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.

Artificial Intelligence (AI) and More Give Kinder Morgan a Robust Backlog. Is the Stock a Buy? was originally published by The Motley Fool