Comparing Dividend-Focused Stocks: Williams versus Kinder Morgan
Heroes in the natural gas pipeline scene, Kinder Morgan (KMI) and Williams (WMB), boast impressive infrastructures that deliver consistent cash flows, enabling them to dish out alluring dividends - 4.3% for Kinder Morgan and 3.5% for Williams. These income-generating projects propel their ability to expand their pipeline networks and pump up their dividends further.
Most investors are likely to settle for owning one of these tantalizing high-yield pipeline stocks in their portfolio. Let's delve deeper to find out the best pick for your dividend income quest.
Peering Under Their Financial Bonnets
Many investors may be swayed by the enticing dividend yields displayed by Kinder Morgan and Williams. However, it's crucial to ensure these high-yielding dividends are sustainable. Let's dig a little deeper into their financial profiles:
| 1 | Kinder Morgan | 45% | 4.0 | 4% |
| 2 | Williams | 47% | 3.8 | 3.4% |
As shown in the above table, Kinder Morgan and Williams share strikingly similar financial profiles. Although Williams' leverage ratio is lower, Kinder Morgan's is on a downward trend, hovering close to its target range. By 2025, it's expected to slide to 3.8. These two titans share equal bond ratings of BBB/Baa2.
Kinder Morgan
Both companies boast secure cash flows due to their long-term, fee-based contracts and regulated rate structures. They consistently generate enough stable cash to outshine their dividends and investment needs. In the previous year, Williams sculpted $100 million in surplus free cash flow following dividend and capital spending, while Kinder Morgan clocked in around $450 million.
45%
The difference in dividend yields is primarily a play of valuation. Williams reported $1.92 per share of adjusted earnings last year, and its market price hovers at around $57, which translates to almost 30x earnings. Meanwhile, Kinder Morgan boasts an earnings per share of $1.15 and a share price of $26.50, making it trade at 23x earnings.
4.0
A Glimpse at Their Growth Potential
4%
Another factor to ponder when choosing between these two is their capacity to boost their high-yielding dividends. Williams has advanced its dividend at a 5% compound annual rate in the past five years, with an additional 5.3% increase planned for 2025. Kinder Morgan, on the other hand, has been increasing its payout at a 2% annual rate lately.
Both organizations possess a plethora of growth opportunities on the horizon. Williams is projected to pump around $1.8 billion into growth capital projects this year. Moreover, they maintain an extensive queue of ongoing expansion projects destined to enrich their bottom lines through the end of the decade.
Williams
Kinder Morgan, too, boasts an abundant catalog of expansion endeavors. It plans to invest approximately $2.3 billion in growth capital projects this year and has recently elevated its long-term capital project backlog by 60%, reaching an impressive $8 billion. These projects also have in-service dates stretching till 2029.
47%
Expansion projects are set to fuel the continuous growth of these pipeline companies' cash flows and dividends. Williams aims for 5% to 7% annual earnings growth in the long run, which could also stimulate a similar uptick in its dividend. Kinder Morgan's earnings growth rate is also on the upswing, anticipated to spike in 2027 as its primary natural gas pipeline projects enter commercial service.
3.8
Kinder Morgan: The Divine Dividend Choice
3.4%
While Williams and Kinder Morgan entice with tantalizing dividends backed by their unreplaceable natural gas infrastructure, the final decision hinges on your investment priorities. If you value a higher dividend yield and are willing to accept a slightly elevated payout ratio, Kinder Morgan may be the better bet. However, if you prefer a more financially stable company with a history of swifter dividend growth, Williams might be your golden ticket. Keep valuation and growth prospects in mind, as Kinder Morgan's lower EV/EBITDA ratio and forthcoming expansion projects make it a compelling choice for long-term dividend seekers.
- Despite having similar financial profiles, Kinder Morgan's dividend payout ratio is currently at 45%, lower than Williams' 47%, indicating a slightly higher percentage of cash flow allocated to dividends.
- Williams' dividend growth rate has been more robust in recent years, with a 5% compound annual increase in the past five years, compared to Kinder Morgan's 2% annual increase.
- Kinder Morgan's expansion plans are quite significant, with a planned investment of $2.3 billion in growth capital projects this year and a recently increased long-term capital project backlog of $8 billion, which could drive both cash flows and dividends in the future.
- For investors who prioritize a higher dividend yield and are willing to accept a slightly elevated payout ratio, Kinder Morgan could be a more attractive option due to its lower EV/EBITDA ratio and forthcoming expansion projects, making it a compelling choice for long-term dividend seekers.
