Kinder Morgan Inc. (NYSE: KMI) announced their fourth quarter financial results after market closed on Wednesday. The stock price jumped up from $12.01 on Wednesday to $15.41 on Friday morning. The company reported that its board of directors passed a quarterly cash dividend of $0.125 per share on Feb 15 to shareholders.
Their dividend is down from $0.51 per share for last quarter. Consistent with the 2016 guidance of Kinder Morgan, the company expects to pay the dividend of $0.50 per share for 2016 and use cash in excess of dividend payments to fully fund growth investments. In addition, during the fourth quarter, Kinder Morgan lost $611 million compared with a profit of $126 million last year, and revenue decreased 8% to $3.64 billion.
Moreover, Kinder Morgan moved to slow its plans to meet the new reality of the energy sector, and the state of its cash flow outlook is the real reason why the stock price jumped up. The company reduced $900 million from its 2016 spending plans to a total of $3.3 billion. The company also said more spending reduction are likely coming in the months ahead.
Even then, or rather as a result of that, the company doesn’t seem to need any outside capital and is still in a position to return some cash to shareholders in the year ahead, even after it cut its dividend in December. Kinder Morgan announced approximately $950 million in cash flow in excess of dividends in the fourth quarter and expects to generate about $3.6 billion beyond dividend payouts and capital expenditures in 2016.
“Given the (somewhat) alleviated concerns over the balance sheet,” analyst Tristan Richardson at SunTrust Robinson Humphrey wrote, “minimal need for external capital and excess cash flow that could be used to de-lever or buy in shares, much of the dire uncertainty has been removed from this name.” Richardson rates the shares a buy and raised his price target from $20 to $28.
Investing in the energy patch has been especially risky lately, even if investors accept that the under the pressure of this sector. UBS Group AG (NYSE: UBS) on Wednesday was forced to redeem shares in two niche investment products, leveraged exchange-traded notes, tied to energy companies, after the drop in share prices was so steep UBS was forced into mandatory redemptions. Thursday’s rally comes off extremely depressed levels, and there’s no guarantee this is the end of the selloff.