Kinder Morgan Stock Might Be Down, but Is It Out?

Shares of Kinder Morgan (NYSE: KMI) have slumped. The natural gas pipeline stock is down about 5% year-to-date and over 15% below its 52-week high. That comes at a time when the S&P 500 is seemingly hitting a new all-time high nearly every day, as it has risen more than 15% year-to-date.

While Kinder Morgan is down, the pipeline stock isn't out. Here's why the slump looks like an attractive buying opportunity for long-term investors.

Image source: Getty Images.

Cashing in on the gas boom

Kinder Morgan is having a solid year. The natural gas infrastructure giant recently reported strong third-quarter results, with its earnings per share rising 16%. It benefited from growing gas demand and its recent acquisition of assets from Outrigger Energy. As a result, it expects to exceed its financial targets for the year.

Meanwhile, Kinder Morgan continues to add new expansion projects to its backlog. It added $500 million in new growth capital projects during the third quarter, completely offsetting the impact of project completions. As a result, it ended the period with $9.3 billion of projects in its backlog, up from only $3 billion at the end of 2023. It has projects on track to enter commercial service through the second quarter of 2030. This provides the company with significant visibility into its earnings growth potential over the next several years.

Additionally, the company is actively pursuing over $10 billion of potential projects, mostly focused on expanding its natural gas infrastructure. Key growth catalysts include robust demand for natural gas from the power generation industry to support AI data centers and new manufacturing plants, as well as further opportunities to support rising liquefied natural gas (LNG) export capacity. Securing additional projects would further strengthen Kinder Morgan's long-term growth outlook.

The value proposition

With its share price slumping, Kinder Morgan now trades at a lower valuation and a higher dividend yield. At 4.5%, the pipeline company's payout is about three times higher than the S&P 500 (1.1% yield). Given the growth it has ahead, Kinder Morgan should have ample fuel to continue growing its dividend, which it has now done for eight straight years.

Meanwhile, the company's expansion projects should support continued earnings growth. Given the timing of its largest projects, Kinder Morgan should start to see a meaningful earnings growth acceleration in 2027 through 2029 when it expects to complete three large-scale gas pipeline projects.

That combination of income and growth could give the pipeline company the fuel to produce a robust total return in the coming years, especially from its currently lower valuation. That makes it look like a good buy while shares are down.

Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.