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Pipeline and energy infrastructure giant Kinder Morgan (NYSE: KMI) soared a staggering 55% in 2024, in lockstep with a rebound across the oil and gas midstream industry. The company reported fourth-quarter and full-year earnings on Wednesday and provided guidance for 2025.

Here are some key takeaways from the report and some guidance as to whether the high-yield dividend stock is worth buying now.

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A solid year

Kinder Morgan's adjusted earnings per share (EPS) rose 7% in 2024. The company generated lower free cash flow (FCF) in 2024 compared to 2023, but was still able to fund its entire dividend expense with FCF despite a 13.5% increase in capital expenditures (capex).

Kinder Morgan's capex is at a five-year high as the company ramps spending on long-term projects. The business model is fairly straightforward. Kinder Morgan builds capital-intensive pipelines, terminals, storage facilities, etc. and then charges its customers fees to use that infrastructure. It's a similar strategy as a toll road, which costs a lot of money up-front but generates future cash flows over the asset's useful life.

Kinder Morgan's surging stock price in 2024 wasn't because of its decent earnings growth. Rather, it was due to shifting perceptions of its existing assets and the growth runway of future projects.

Kinder Morgan's shifting narrative

Despite its huge run-up last year, Kinder Morgan is still down 26% over the past decade. The company was overleveraged and crushed by the 2014 and 2015 oil and gas downturn, slashing its dividend to shore up capital.

In the aftermath of the downturn, Kinder Morgan tightened its spending and focused on rebuilding the business based on its highest-conviction projects. Kinder Morgan gradually increased its dividend, but remained out of favor because investors questioned the long-term value of oil and gas assets. After all, if demand for oil and gas was expected to gradually decline, then Kinder Morgan's existing assets could also go down in value. And it would have little reason to justify building new projects.

But a surge in U.S. oil and gas production, especially out of the Permian Basin in West Texas and eastern New Mexico, sparked a greater need for increased takeaway capacity to transport hydrocarbons out of the region. A boom in U.S. liquefied natural gas exports expanded the market for U.S. gas -- setting the stage for the U.S. to be a net exporter of oil and gas, and thus increase demand for energy infrastructure.

Then came the latest catalyst: artificial intelligence (AI). Data centers are needed to support complex and energy-intensive AI workflows. And Kinder Morgan is a big believer that natural gas will be critical in supplying reliable energy for a growing U.S. grid.

So even if the U.S. energy mix includes more solar and wind energy over time, demand for natural gas could still increase due to higher overall energy demand.

Kinder Morgan CEO Kim Dang said the following in response to an analyst question on the earnings call about the new U.S. administration pushing AI infrastructure with the $500 billion announced investment:

I think we are early, you know, in the data center trend, and the power that's going to be needed there. And so, you know, I think that the encouragement that this administration has given on the data center development ... their desire to see American energy do well, I think, all plays into a nice long-term trend for natural gas demand.

However, Dang said that power generation is only expected to contribute 3 billion cubic feet per day (bcf/d) of the anticipated 28 bcf/d increase in natural gas demand between now and 2030. In other words, Kinder Morgan could benefit from AI-driven power demand, but it isn't counting on it being the main driver of its medium-term growth.

Balancing growth, dividends, and financial health

For 2025, Kinder Morgan forecasts $2.8 billion in net income and adjusted EPS of $1.27, a 10% increase from 2024. It expects to increase its dividend by 2% and pay $1.17 per share in 2025 dividends -- a considerable portion of its earnings.

Kinder Morgan has made very minor dividend increases in recent years, which isn't a great sign. But it could be the smart move so the company still has excess capital to reinvest in the business and drive growth. What's more, Kinder Morgan already sports a solid yield of 3.7%. So there isn't as much need to make sizable dividend raises.

The company expects to end 2025 with a net debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 3.8. It finished 2024 with a debt ratio of 4 and has a long-term leverage target range of 3.5 to 4.5.

Given Kinder Morgan's poor track record of managing leverage, it's encouraging to see the company continue to prioritize financial health and not overspend.

The stock has a price-to-earnings ratio of 24.2 based on the share price at the time of this writing and 2025 adjusted EPS guidance of $1.27. So it isn't an inexpensive stock by any means, which makes sense, given the 2024 gain in the stock price far outpaced earnings growth. But because Kinder Morgan was so cheap heading into last year, the valuation is still reasonable.

Alternatives to Kinder Morgan

In past years, Kinder Morgan was an out-of-favor stock. Now, it is back in favor due to renewed strength in oil and gas, a potential boon from AI-driven power demand, and an administration supporting increased oil and gas output.

Kinder Morgan is a decent but not screaming buy now. It used to be an ultra-high-yield stock, but now the yield is the same as ExxonMobil's and lower than Chevron's 4.2% yield. Investors looking for foundational holdings in the oil and gas industry may want to consider ExxonMobil or Chevron over Kinder Morgan right now.

Another alternative is a low-cost exchange-traded fund (ETF) like the Vanguard Energy ETF, where ExxonMobil, Chevron, Kinder Morgan, and other midstream companies like Williams Companies and ONEOK are five of the 10 largest holdings.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron and Kinder Morgan. The Motley Fool recommends Oneok. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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