A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Recently, Kinder Morgan Canada Limited (TSE:KML) has started paying dividends to shareholders. Today it yields 3.9%. Let’s dig deeper into whether Kinder Morgan Canada should have a place in your portfolio.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does Kinder Morgan Canada fare?
The current payout ratio for KML is negative, which means that it is loss-making, and paying its dividend from its retained earnings.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Kinder Morgan Canada as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
In terms of its peers, Kinder Morgan Canada has a yield of 3.9%, which is on the low-side for Oil and Gas stocks.
Now you know to keep in mind the reason why investors should be careful investing in Kinder Morgan Canada for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three essential aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for KML’s future growth? Take a look at our free research report of analyst consensus for KML’s outlook.
- Valuation: What is KML worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether KML is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.