As reported in Barrons, Kinder morgan released a statement last Friday that opens the door for a dividend cut next year.
On Friday the company issued a statement that suggested a dividend cut is a possibility for next year. Kinder Morgan said it expects to generate over $5 billion of distributable cash flow (a cash-flow measure favored by master limited partnerships) in 2016, which it said would be “sufficient to support dividend growth” in line with a 6% to 10% target range laid out in October.
“Alternatively, this cash flow can be used to fund some or all of Kinder Morgan’s equity needs for 2016. Kinder Morgan’s board will be reviewing the dividend policy and financing plans in the coming days and the company will announce that policy and plan when finalized.”
The main reasons for a dividend cut at Kinder Morgan would be persistent low oil prices combined with its debt load.
Kinder Morgan’s dividend is more vulnerable than that of its peers because of high net debt of $42.5 billion, which is nearly six times annual cash flow, versus an average ratio of four at other big MLPs. The company has chosen to finance the bulk of its capital expenditures with new debt and equity, exposing it to currently unfriendly debt and equity markets.