Natural gas demand is expected to increase rapidly by 2030. Low-carbon fuels will help meet accelerating electricity demand in the United States and abroad, driving strong and increasing cash flow for natural gas infrastructure operators and enabling them to pay their bills. Earn attractive dividends and invest in business expansion.
Kinder Morgan (NYSE: KMI) and Williams (NYSE: WMB) are two of the country’s natural gas infrastructure leaders. So for people with less than $1,000 to invest right now, these pipeline stocks look like an easy investment.
Expand dividends by paying more fuel
Kinder Morgan operates the nation’s largest natural gas transmission network. The country has 66,000 miles of pipelines, transporting 40% of the country’s gas production. It also owns 15% of the country’s storage capacity and other related infrastructure such as gas processing plants and export terminals.
The company’s gas infrastructure assets provide very stable cash flows (68% are take-or-pay or hedged, meaning the full contract amount is paid no matter what). Kinder Morgan expects to generate about $5 billion in cash this year, $2.6 billion of which will be paid out to investors through dividends. The company plans to retain the remainder to fund expansion projects and maintain a strong balance sheet to take advantage of acquisition opportunities as they arise.
Kinder Morgan is currently building $5.2 billion worth of expansion projects, half of which are expected to be operational and contribute to cash flow by the end of next year. Approximately $4.2 billion of the company’s projects are supporting natural gas needs, including 17 to bring more gas to power markets in the Southeast and local distribution markets, expected to come online in late 2028. It also includes a $1 billion pipeline expansion. These projects provide a lot of perspective on the company’s growth potential. Cash flows and dividends for the next few years. The company has increased its dividend for seven consecutive years and currently has a yield of nearly 5%. At that rate, for every $100 you invest in stocks, you’ll earn more than $5 in dividend income each year.
The company expects to capture more growth opportunities in the future. Kinder Morgan expects gas demand to increase by 20 billion cubic feet per day (Bcf/d) by 2030, driven by increased U.S. electricity and industrial demand, increased LNG and Mexican exports. This does not include the potential increase in demand to power more data centers. In the base case, data centers could see an increase in demand of 3 Bcf/d to 6 Bcf/d by 2030, and even more than 10 Bcf/d. This should allow the company to continue investing in expanding its infrastructure, increasing cash flow and dividends.
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Future growth is clearly visible
Williams is a leader in natural gas infrastructure. The company owns more than 33,000 miles of pipelines that transport one-third of all gas used in the country. Its most important pipeline is the Transco system, which is the country’s largest gas pipeline by volume. It also owns gathering and processing assets and gas storage capacity.
The pipeline giant expects to raise about $5 billion in FFO this year. This is enough cash flow to cover the nearly 4% dividend at 2.2x. Williams will maintain its remaining cash to invest in expansion projects and maintain the financial flexibility to take advantage of accretive acquisition opportunities as they arise.
Williams has an extensive pipeline of growth capital projects under construction. The company plans to spend an average of $1.7 billion over the next two years on expanding projects that will be operational by 2027. This includes 12 gas transmission projects that will add 4.2 Bcf/d of production capacity by 2027. These projects bring many benefits to the company. Visualize future growth. That supports the company’s view that it should be able to grow its dividend at about 5% to 7% a year through at least next year.
The company has a lot of potential to grow beyond that period. The company is currently working on 30 additional gas transmission and expansion projects, which could add an additional 11.5 Bcf per day of capacity by 2032. On the other hand, additional gas gathering and processing capacity may need to be built to support increased production. These future projects and increasing acquisition potential could give Williams plenty of fuel to grow its future FFO and dividends.
Generous dividend income and growth
Kinder Morgan and Williams generate billions of dollars in steady cash flow each year from their natural gas infrastructure platforms. This allows them to pay high-yield dividends and have capital to invest in business expansion. With a lot of growth expected in the coming years, these pipeline companies will continue to take advantage of the growing demand for gas and could generate significant total returns in the coming years.
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Matt DiLallo has a position at Kinder Morgan. The Motley Fool has a position in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
2 Easy High Dividend Stocks to Buy Now for Under $1,000 was originally published by The Motley Fool.
