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shares of kinder morgan (NYSE:KMI) According to data provided by , it fell by 2.4% in 2023. S&P Global Market Intelligence. It wasn’t a bad performance, but it was significantly below performance. S&P500 (Increased by 24.2% in 2023). On a positive note, Kinder Morgan’s total return, including its high-yield dividend, was a positive 4.1% in 2023.
Rising interest rates, falling oil prices and other factors weighed on natural gas. pipeline stock last year. Here’s a quick look back at 2023 and what investors can look forward to next year.
Battling headwinds in 2023
Kinder Morgan predicted last year that rising interest rates would be a headwind. The pipeline giant announced its 2023 financial guidance in December 2022. At the time, the company expected distributable cash flow (DCF) to decline from $2.17 to $2.13 per share. The reason was that last year’s DCF was expected to decline by $0.15 per share due to rising interest rates.
Unfortunately, that wasn’t the only headwind it faced last year. Kinder Morgan has not yet announced its full-year results, but in its third-quarter earnings report it warned, “On a full-year basis, we expect 2023 to end slightly below plan.” The reasons were “lower-than-expected commodity prices, delays in RNG projects, and increased pipeline maintenance costs.”
On the positive side, the company was able to take advantage of last year’s difficult market conditions to close some big deals.Rising interest rates will force energy infrastructure operations NextEra Energy Partner This is to change its strategy, including putting its natural gas pipeline assets up for sale. Kinder Morgan was able to take advantage of this situation by acquiring his STX Midstream from NextEra Energy Partners for approximately $1.8 billion. This is approximately 8.6 times STX Midstream’s estimated 2024 earnings before interest, taxes, depreciation and amortization (EBITDA). Over the long term, Kinder Morgan expects its acquisition multiple to decline to approximately 7-7.5x by combining its highly complementary pipeline portfolio.
Meanwhile, Kinder Morgan expects 2024 to be an even better year. The company expects its DCF to rise approximately 5% this year due to interest rate hikes and recently completed expansion projects. This forecast does not include the benefit of increased STX midstream deals, which should boost growth this year. The growth in earnings will allow Kinder Morgan to increase its dividend again this year (the company aims to raise the dividend by about 2%, marking the seventh consecutive year of increases).
Is Kinder Morgan a buy after a lackluster year?
2023 was a down year for Kinder Morgan, but this year could be even better. Headwinds should subside and the company should be able to start growing cash flow again (with additional boost from STX Midstream). With earnings growing more than 5% and a dividend yield of more than 6%, the company should have the drive to deliver double-digit total returns in 2024. That could make the company look like an attractive buy for companies looking for income and some growth.
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Matthew DiLallo holds positions at Kinder Morgan and NextEra Energy Partners. The Motley Fool has a position in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
Why Kinder Morgan Will Significantly Underperform the S&P 500 in 2023 was originally published by The Motley Fool.
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