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Kinder Morgan: The Dividend Is Not Safe But The Stock Is A Great Bargain Near Its Historic Lows

Published Wed, 25 Mar 2020 13:43:36 -0400 on Seeking Alpha

KMI has lost more than half of its market cap within the last month due to the fierce sell-off of the entire energy sector.
Its dividend is not entirely safe due to its appreciable amount of debt.
However, as soon as the coronavirus crisis subsides, KMI will highly reward investors off its nearly historic lows.
Kinder Morgan (KMI) has lost more than half of its market cap within the last month due to the fierce sell-off of the entire energy sector, which has been caused by the outbreak of coronavirus. As a result, the stock fell to single digits a few days ago and is still trading near its historic lows. While the dividend of the stock is not absolutely safe, the stock is a great bargain near its historic lows.
The effect of coronavirus
The primary reason behind the recent plunge of Kinder Morgan is the outbreak of coronavirus, which has forced numerous businesses to shut down and millions of people to stay at home. This lockdown will certainly take its toll on the demand for natural gas. The consumers who stay at home for the whole day will consume more natural gas but this effect will not be sufficient to compensate for the steep decrease in the industrial and corporate demand. This has led the price of natural gas to collapse to a multi-year low of $1.65.
On the bright side, Kinder Morgan operates with a robust business model, which serves to generate reliable cash flows regardless of the dramatic swings of commodity prices. 91% of the cash flows of the company are fee-based or secured by minimum quantities. In other words, even if the customers of Kinder Morgan transport lower amounts of natural gas than expected, they are forced to pay a minimum amount to the company. Moreover, about 5% of the cash flows of Kinder Morgan are hedged from a decline in commodity prices. As a result, one could be tempted to conclude that Kinder Morgan is protected from the ongoing downturn.
Unfortunately, this is not the case. The minimum amounts specified by the... Read more