Kinder Morgan, Inc.

01/14/2015 7:00 am EST

Focus: STOCKS

David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

Our favorite conservative idea for the coming year is now the biggest midstream company in the US and the third-largest energy company, period, explains David Dittman, editor of Utility Forecaster.

Kinder Morgan, Inc. (KMI) has swallowed up affiliates El Paso Pipeline Partners LP, Kinder Morgan Management LLC, and Kinder Morgan Energy Partners LP, making its profile in the ongoing expansion of US oil and gas production even greater.

We’ve noted our displeasure with the form of Richard Kinder’s consolidation transaction, which punished long-term unit holders.

But Kinder Morgan, Inc.—with a significantly reduced cost of capital due to the recent acquisitions—now has a strong foundation for long-term growth, with unmatched scale and diversity.

And management has forecast a five-year annual dividend growth rate of 10%.

The stock has held up remarkably well during the crude oil crisis that punctuated the second half of 2014 and promises to bleed into 2015.

Management expects to declare dividends of $2.00 per share for 2015, a 17.6% increase over the 2014 dividend of $1.70. That’s a yield of 4.9%.

Growth in 2015 will be driven by continued high demand for North American energy infrastructure, including the transportation and storage of natural gas, natural gas liquids (NGL), crude oil, and refined products.

Management’s forecast assumes an average crude oil price of approximately $70 per barrel in 2015. But the overwhelming majority of cash generated by its assets is fee-based and isn’t sensitive to commodity prices.

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