Morningstar | Performance Remains Strong for Kinder Morgan
We are reaffirming our $19.50 per share fair value estimate after Kinder Morgan announced full-year results in line with our expectations. The board approved a $0.20 per share quarterly dividend, up 60% from 2017, in line with our expectations. We are reaffirming our no-moat and stable moat trend ratings.Management reported $7.6 billion adjusted EBITDA and $2.12 per share distributable cash flow for full-year 2018, in line with our estimates and management's guidance. Management reaffirmed its $7.8 billion adjusted EBITDA and $2.20 per share of distributable cash flow forecast for 2019. These are generally in line with our forecasts. We will review our near- and long-term estimates after Kinder's investor day next week, but we don't expect any material new announcements or changes.
Kinder management reaffirmed its plan to raise its annualized dividend to $1 per share in 2019 and $1.25 in 2020. Although dividend policy has no impact on our fair value estimate, we think shareholders should be impressed by management's execution of its aggressive dividend growth trajectory set out in 2017. We think Kinder's 4.6% dividend yield as of mid-January is attractive given management's dividend growth plan.
Apart from the dividend increases, Kinder continues to face the challenge of finding enough growth projects in which to invest its substantial cash flow. We expect it will easily finance its $6 billion of planned growth projects during the next two years without issuing equity.
Kinder is on track to secure a strong investment-grade credit profile after using its $2 billion return of capital payment from Kinder Morgan Canada to pay down debt. We think this opens the opportunity to use excess cash for stock repurchases. We think this would be value-accretive given the stock trades at a 10% discount to our fair value estimate as of mid-January.
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.
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