Kinder Morgan Expands with a $1.4 Billion Pipeline Project to Boost Dividend Growth

Kinder Morgan (KMI) consistently rewards its investors with high dividends, currently reflecting a yield of 4.3%. This yield is significantly higher than the S&P 500 average of 1.2%. The company has grown its dividend for seven consecutive years and has plans to increase it again in 2025.

Kinder Morgan is well-positioned for future dividend growth due to its strategic expansion projects. Recently, it approved a significant natural gas pipeline expansion called the Mississippi Crossing Project. This expansion reflects the company’s ability to pursue impactful growth opportunities.

The Mississippi Crossing Project

Kinder Morgan's subsidiary, Tennessee Gas Pipeline, has green-lighted the Mississippi Crossing Project (also known as the MSX Project). This initiative will involve constructing a 206-mile pipeline from Greenville, Mississippi, to Butler, Alabama, connecting it to the existing Tennessee Gas Pipeline system and other third-party pipelines. The new pipeline is designed to transport 1.5 billion cubic feet of natural gas daily, with all of this capacity already secured through long-term transportation agreements. The company anticipates that the project will enter commercial service by November 2028, pending all necessary permits.

The estimated investment for the initial phase of this project is $1.4 billion, with ongoing discussions about adding an additional capacity of 0.4 billion cubic feet daily, which may require further investment in infrastructure.

The MSX Project aims to boost natural gas supply in the Southeast, addressing increasing regional demand and potentially lowering energy costs for consumers.

More Growth with Additional Projects

The MSX Project is not the only major venture Kinder Morgan has planned. Earlier this year, it partnered with Southern Company to initiate the South System Expansion 4 Project, which will increase the capacity of Southern Natural Gas' South Line by 1.2 billion cubic feet per day. This $3 billion project (with Kinder Morgan's share being $1.7 billion) is also looking to be completed by late 2028 and will likewise help expand gas supplies in the Southeast.

With these two expansions, Kinder Morgan has made a commitment of $3.1 billion towards significant natural gas pipeline projects just this year. Currently, it has approximately $6.5 billion in capital projects slated for completion over the next few years. This backlog includes additional natural gas projects, such as the Gulf Coast Express Pipeline expansion, scheduled to be operational in mid-2026, as well as the Gulf Coast Storage Expansion project expected in the first half of 2027. The company is not limiting its investments solely to pipelines but is also exploring opportunities across its carbon dioxide, terminals, products, and new energy sectors. As these projects are brought online, they are anticipated to generate additional cash flow, further facilitating dividend payments.

CEO Kim Dang noted, "We expect to announce additional projects in the coming months," which is supported by the solid fundamentals of the natural gas industry. Demand forecasts predict significant growth in the next five years, driven by increases in liquefied natural gas (LNG) exports, exports to Mexico, and usage in power generation. Factors such as the move towards decarbonization, the electrification of transportation, reshoring of manufacturing jobs, and the need for new AI data centers are fueling this growth. By adding more projects, Kinder Morgan can strengthen its long-term growth prospects.

The company’s financial capacity is robust enough to support this growth. Kinder Morgan produces a strong surplus of free cash flow, even after paying its high-yield dividend. It plans to fully finance its projected $2.3 billion in growth capital expenditures next year solely from its internal cash flow, which will follow an increase in its dividend. Furthermore, the company maintains a solid investment-grade balance sheet and has ample borrowing capacity. It is on track to conclude next year with a leverage ratio of 3.8, comfortably within its target range of 3.5 to 4.5.

Looking Ahead for Kinder Morgan

Kinder Morgan has outlined several new expansion initiatives this year, significantly improving its growth trajectory. The company is expected to experience steady growth over the coming years, highlighted by the completion of its major gas pipeline expansions in late 2028. This clear path for growth supports the belief that Kinder Morgan will be able to continue raising its high-yield dividend for the foreseeable future.

Note: The author has positions in Kinder Morgan.

Kinder, Morgan, Dividend