Kinder Morgan Inc’s (NYSE:KMI) Dividend- Will It Be Affected By the Declining Oil Prices?

The prices of oil have fallen down quickly since the time the market experienced financial crises. They are currently trading at their 5 year lows. It is natural for the investors of energy companies, like Kinder Morgan Inc (NYSE:KMI), to be worried about the growth and safety prospects of these companies.

So let’s just analyze the stocks of Kinder Morgan Inc (NYSE:KMI) and see as to whether it is a safe stock for the investors, especially the retirees.

The company generates around 82 percent of its EBITDA from its fixed fee long term contracts. These contracts are drafted in a way to accommodate for the seasonal price increases. Only 14 percent of the total exposure of Kinder Morgan Inc (NYSE:KMI) relates to oil. The company collects oil from its Permian basin wells. Last quarter alone, Kinder collected around 57,000 barrels of oil per day. But this is not the only oil exposure that the company gets; Kinder Morgan Inc (NYSE:KMI) also experiences some indirect exposure, which comes from its CO2’s transportation and storage. This indirect exposure accounts for 6 percent of the total EBIDTA of the company.

The company is also hedging its oil production. Last quarter, Kinder Morgan hedged around 22.3 million barrels of oil. Moreover, the company is hedging at a very favorable rate. In 2014, it hedged at a rate of $95 per barrel, which accounted for 82 percent of the total year’s production. As for the year 2015, the company hedges at a price of $91 per barrel.

What the investors of the company want to know is as to whether the outlook that the management of Kinder Morgan Inc (NYSE:KMI) posted for the years 2015 and 2020 will be affected by this decline in the oil prices.

According to the management of Kinder Morgan Inc (NYSE:KMI), the company loses around $7 million each year for every dollar that the oil prices remain below the rate of $96.15, which, consequently, affects the distributable cash flow of the company. Oil prices are currently trading at $61 per barrel, which means that the company is $246.1 million below its projection.

Although this sounds unsettling, but what the investors need to keep in mind is that this shortfall represents only 3.2 percent of the company’s DCF, that is, around $7.7 billion.

Moreover, the chief financial officer of Kinder Morgan Inc (NYSE:KMI), Kimberly Dang, announced that the company has some extra cash of around $400 million in order to protect its dividends from getting hurt. So, the investors of Kinder do not need to worry, for the company had already planned for such a situation. The dividends are safe; however, the company may see a slow or no growth during the upcoming quarters.

Coming to the stock prices of Kinder Morgan Inc (NYSE:KMI), the company, on the last trading day of December 11, 2014, started its stocks at a price of $39.52 and closed at a price of $39.88, after hitting the highest price of $40.22.