Morningstar | Kinder Morgan Holds to 2019 Dividend Increase, Solid Growth Ahead
We are raising our fair value estimate to $19.50 per share from $19.20 after incorporating year-to-date results and management's initial outlook for 2019 that are generally in line with our outlook. We are reaffirming all our long-term assumptions, and the fair value estimate increase is due to time-value appreciation since our last update. We are reaffirming our no-moat and stable moat trend ratings.Management announced an outlook of $7.8 billion adjusted EBITDA and $2.20 per share of distributable cash flow, or DCF, in 2019. The EBITDA outlook is slightly above our initial 2019 estimate, but the DCF is slightly below our estimate, all resulting in no net impact on our fair value estimate. We are not making any material changes to our estimates pending a more detailed look at management's outlook during its investor day in January. We continue to forecast $7.5 billion of adjusted EBITDA in 2018, in line with management’s reaffirmed guidance.
Kinder management reaffirmed its intent to raise its annualized dividend to $1.00 per share in 2019 and $1.25 per share in 2020, up from $0.80 per share in 2018. Although dividend policy has no impact on our fair value estimate, we think shareholders should take great confidence in management given its ability to stick with an aggressive goal it set out in 2017. We think Kinder's 4.8% dividend yield as of early December is attractive given the outlook for dividend growth the next two years.
We also expect to hear more details about how Kinder will use the $2 billion of cash from the TransMountain project sale and its plan for Kinder Morgan Canada, or KML. With Kinder Morgan stock trading below our fair value estimate as of early December, its continued $2 billion stock repurchase plan will be value-accretive. Alternatively, Kinder could use the cash to fund almost $6 billion of planned growth projects we forecast during the next two years without issuing new equity.
Kinder Morgan is an energy infrastructure company. The company's segments are: Natural Gas Pipelines, which includes the ownership and operation of, among others, main interstate and intrastate natural gas pipeline and storage systems; Products Pipelines, which includes the refined petroleum products, crude oil and condensate pipelines; Terminals, which includes the ownership and/or operation of, among others, liquids and bulk terminal facilities; and carbon dioxide (CO2), which includes the production, transportation and marketing of CO2, ownership interests in and/or operation of oil fields and gasoline processing plants in West Texas.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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