Pipeline companies rallied sharply in November. Natural gas pipeline giant Kinder Morgan (KMI -0.11%) rallied 15.1%, according to data provided by S&P Global Market Intelligence.
Kinder Morgan (KMI -0.07%) had been in a rut for the past several years. The natural gas pipeline giant's earnings barely budged as contract expirations offset the benefit of expansion projects.
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If you look at midstream giant Kinder Morgan (KMI 0.71%) in isolation today, it seems like an attractive dividend stock. The yield is roughly 4% or so, which is higher than the 3.3% yield of the average energy company, using the Energy Select Sector SPDR ETF as an industry proxy.
Kinder Morgan is in a strong uptrend, with shares expected to exceed $30 soon, driven by favorable macroeconomic conditions and energy infrastructure demand. The Fed's rate cuts and potential deregulation under the Trump administration will benefit KMI, allowing for lower refinancing costs and increased revenue from fixed-fee contracts. KMI's extensive natural gas network positions it well to capitalize on the AI boom and growing energy demand, with significant projects in the pipeline.
I only expect minimal dividend growth for Kinder Morgan during 2025. Whilst the incoming Trump administration should create favorable operating conditions, there will be a lag before new policies flow through to their business. KMI intends to keep leverage restrained and given the size of their current capital expenditure and dividend payments, this leaves dividend growth reliant on earnings growth.
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Kinder Morgan's stock has surged 71% year-to-date, reducing its yield to 4%, the lowest since 2018, but still offers solid income. The company is crucial in U.S. natural gas infrastructure, benefiting from rising demand, LNG exports, and domestic power generation. Despite its strong performance, KMI's current valuation is high, and I recommend waiting for a pullback before making significant new investments.