Kinder Rises as Improving Dividend Outlook Spurs Upgrades

(Bloomberg) -- Kinder Morgan Inc. climbed more than 3 percent after billionaire founder Rich Kinder said the pipeline owner's favored use for any future excess cash is dividend increases, rather than share buybacks or new projects.

Kinder's comments during a conference call after U.S. equity markets closed on Wednesday prompted at least three analysts to upgrade the stock. The Houston-based company's debt-reduction efforts and moves to fund operations with cash flow instead of borrowed money may allow it to start boosting payouts as soon as 2018, said Tristan Richardson, an analyst at SunTrust Robinson Humphrey.

Kinder Morgan shocked investors last last year with a 75 percent cut to its dividend after credit-rating companies threatened to lower the company's debt ratings. Kinder executives hinted in July that the company's cash position was improving so quickly that increasing dividends was a possibility, though no timeline was provided.

“With clarity on a dividend hike as KMI's preferred method, we have increased confidence in a dividend hike in 2018,” Richardson said in a note to clients. The company's willingness to consider selling stakes in major projects such as the Trans Mountain oil pipeline expansion in Canada to raise cash may speed the return to dividend growth, he added.

Kinder rose 2.1 percent to $21.16 at 9:45 a.m. in New York after earlier touching $21.45. The stock has advanced more than 40 percent this year, quadruple the gain for the Alerian MLP Index of pipeline and storage operators.

Project Backlog

The oil, natural gas, coal and fuel shipper's project backlog declined to $13 billion during the third quarter from $13.5 billion on June 30, according to a statement released on Wednesday. Investors pay close attention to the backlog because it's an indicator of future growth prospects. The company also reduced its full-year capital budget by $100 million to $2.7 billion.

Kinder's debt load fell below $40 billion for the first time since late 2014 after the company slashed it by more than $2 billion from the previous quarter to $39.2 billion, according to the statement. Kinder, with a market value of about $46 billion, has also been selling stakes in assets to raise cash and demanding collateral from customers teetering on the edge of insolvency to ensure payment.

Rich Kinder's comments followed a third-quarter earnings report that underperformed analysts' expectations. The company posted a net loss of $188 million, or 10 cents a share, compared with a profit of $186 million, or 8 cents, a year earlier. The per-share result missed the 15-cent profit estimate of 15 analysts in a Bloomberg survey. Not a single analyst in the survey expected the Houston-based company to post a loss.

In reporting the negative result, Kinder Morgan cited a $230 million after-tax writedown of the value of its stake in the Midcontinent Express pipeline, a 510-mile (820-kilometer) linkage that hauls natural gas across four states in the U.S. Great Plains and South. Customers on that pipe are indicating they will seek lower shipping rates when their existing contracts with Kinder expire, Chief Financial Officer Kim Dang said during the conference call.

Kinder also recorded a $350 million after-tax charge related to tax expenses and its sale of a 50 percent stake in a pipeline to Southern Co. that closed last month, Dang said during the call.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Stephen Cunningham