If you like Kinder Morgan’s 6.1% dividend yield, you should check out this high-yield rival

Kinder Morgan (NYSE:KMI) is one of the most popular dividend stocks, and it’s easy to see why. The natural gas pipeline giant currently offers a 6.1% dividend yield, one of the highest in the world. S&P 500 Index. This massive payout has a rock-solid foundation, making it an excellent choice for those looking for stable dividend income.

However, if Kinder Morgan takes a hit, the pipeline giant has struggled to grow for years.Here’s why investors who like Kinder Morgan should look at other natural gas companies Pipe inventory williams (NYSE:WMB).Although Williams currently has lower grades dividend yield (4.8%), its growth rate may continue to exceed Kinder Morgan in the future.

slow and steady grower

Kinder Morgan has been stuck in a rut for much of the past few years. Last year, the company’s adjusted earnings before interest, tax, depreciation and amortization were $7.5 billion (Interest, tax, depreciation and amortization advance profit). This is in line with 2022 and 2018 levels.

Two major headwinds have slowed Kinder Morgan’s growth in recent years. First, it sold billions of dollars in assets to pay down debt. Those sales helped fuel its growth. Leverage ratio It’s down 26% since 2016 to a much more comfortable 3.9x (well below the long-term target of 4.5x). Second, it must address large contract rollovers for multiple pipeline systems.

On a more positive note, these headwinds will subside this year. This will position the company to benefit from multiple growth drivers, including recently completed expansion projects and the recent $1.8 billion acquisition of STX Midstream. These catalysts should boost its adjusted EBITDA by approximately 8x as a percentage in 2024.

At the same time, the company also has a backlog of about $3 billion in high-return expansion projects to fuel future growth, and its balance sheet is stronger, giving it the flexibility to make acquisitions to accelerate growth.

However, despite this growth, the company will likely only increase its dividend modestly in the future. Dividends are expected to rise about 2% this year, roughly in line with the recent pace. While investors can expect high yields as well as modestly increased dividends, that may not be exciting enough for some who own the stock.

More growth momentum

Williams hasn’t faced the same headwinds as Kinder Morgan in recent years. As a result, the company’s adjusted EBITDA has grown at a CAGR of 8% since 2018 to its current level of $6.8 billion. The natural gas pipeline company has delivered a 25% reduction in leverage since 2018 to the current level of 3.6x.

The company expects to continue expanding at a solid pace. Its long-term goal is to grow adjusted EBITDA at an annual rate of 5% to 7%. The company has a large backlog of expansion projects to fuel its growth, with projects currently lined up to come online in 2027.

The company expects to invest $3.4 billion in growth capital projects over the next two years alone. In addition to these acquired projects, the company is pursuing an additional 30 natural gas transmission projects that could fuel its growth over the next decade.

At the same time, its low leverage gives it significant financial flexibility to make acquisitions to support its growth objectives. It recently acquired a major natural gas storage portfolio for about $2 billion. This follows two notable deals the company completed in 2023 (the $1.5 billion acquisition of MountainWest) and a $1.3 billion strategic deal to strengthen its position in the DJ Basin.

Since 2021, the company has made $6.1 billion in acquisitions. Given its low leverage, Williams has the flexibility to make more acquisitions as opportunities arise.

Williams’ faster earnings growth allows it to achieve higher dividend growth rates. Its dividend payments have grown at a compound annual rate of 6% since 2018, including a 6.1% increase earlier this year. Given its lower dividend payout ratio (2.3x 2018 coverage) through 2024 (compared to Kinder Morgan’s ~2x) and faster expected earnings growth, the company is likely to continue achieving mid- to high-digit earnings growth. Single-digit dividend growth.

A little more fuel than Kinder Morgan

Kinder Morgan is a great stock for those looking for high yield and a reliable income stream that should rise at a moderate pace over the long term. While Williams’ yield isn’t as high as Kinder Morgan’s, its earnings and dividends are growing faster and because of this, it can generate higher total returns over the long term. This makes it a potentially more attractive option compared to its more popular counterparts.

Should you invest $1,000 in Kinder Morgan right now?

Before buying Kinder Morgan stock, consider the following factors:

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Matt DiLallo Holds Kinder Morgan job title. The Motley Fool owns Kinder Morgan jobs and recommends Kinder Morgan. Motley Fool owned disclosure policy.

If you like Kinder Morgan’s 6.1% dividend yield, you should check out this high-yield rival Originally published by The Motley Fool

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