Like many (most? all?) oil-related stocks Kinder Morgan (KMI), the operator of 70,000 miles of natural gas pipelines, has moved up strongly during the recent rally in the price of oil. The stock, a member of my Dividend Portfolio since February 24, 2016, has gained 38.13% in 2021 to date as of the May 26 close. The stock has gained 26.67% in the last three months and 10.11% in the last month.
The dividend, which produces a yield of 5.89% isn’t in danger. And I’m not selling because I’m worried about that potential.
But growth at Kinder Morgan depends on the company’s ability to buy or build new pipeline capacity and earn a high rate of return on that investment.
That’s where I see the problem for the company in the near term and beyond. U.S. natural gas production isn’t under the same pressures as the oil sector is from the need to control rising global temperatures. But natural gas is losing its stature as a “clear” fossil fuel that can serve as a transition of renewable energy from wind and solar. Partly that’s the natural gas industry’s own fault. Flaring from natural gas wells, which produces methane, a much more potent global warming gas than carbon dioxide, soared during the pandemic and looks to climb further as major international oil companies spin off oil and natural gas reserves to smaller, often-private producers with less concern, if I can judge from their practice and not their rhetoric, with reducing carbon emissions. But it’s also a result of the crisis atmosphere that makes it clear that the world has wasted time that it could have put to use engineering a gradual reduction in fossil fuel use. It’s hard for me to imagine that Kinder Morgan or any other natural gas pipeline operator is looking at increased demand for transportation capacity.
I suspect that the price of oil–and with it the price of fossil-fuel related assets–will pull back here as OPEC+ oil producers work to increase production as fast as they can to repair their own shattered national budgets.
I’m selling Kinder Morgan to get ahead of that downward trend–as difficult as it will be to find a way to replace that 5.89% yield.