Shares of Kinder Morgan (KMI -0.26%) broke out in 2024. The natural gas pipeline giant had rallied more than 50% heading into the last few trading days of the year. Add in its high-yielding dividend (currently above 4% after its rally), and the total return is over 60%. That has absolutely crushed the S&P 500 index, which has delivered a total return approaching 30%.
Here's what powered the pipeline stock's monster rally in 2024 and whether it has the fuel to continue outperforming in 2025.
Stomping on the gas in 2024
Kinder Morgan had been in a rut in recent years. In 2023, the natural gas pipeline giant produced $7.5 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That's the same level as 2018 after adjusting for the impact of asset sales.
However, the company stomped on the accelerator this year. It's on track to grow its adjusted EBITDA by around 5% in 2024. Meanwhile, Kinder Morgan expects its adjusted earnings per share to rise by about 9% this year. The pipeline company is benefiting from fading headwinds (from asset sales and large contract rollovers) and the impact of recent expansion-related investments (including the acquisition of STX Midstream at the end of last year).
On top of that, its longer-term growth prospects have improved significantly. The company has recently added a couple of large-scale natural gas pipeline projects to its backlog, which should both enter service in 2028. It has also added a few smaller projects that will enter commercial service over the next few years. These projects have significantly enhanced and extended its growth outlook.
These growth catalysts have helped drive the rally in Kinder Morgan's stock price. Investors now believe the company will grow at a solid rate in the coming years, which is driving a higher valuation for the stock.
The outlook for 2025 and beyond
Kinder Morgan expects its earnings to continue heading higher in 2025. The company anticipates generating about $8.3 billion of adjusted EBITDA next year, around 4% higher than its 2024 total. Meanwhile, it anticipates that its adjusted earnings will rise by 8% in the coming year to around $1.27 per share. That will give it the fuel to continue increasing its dividend (2025 will be its eighth straight year of dividend growth).
The company also expects to continue enhancing its long-term growth profile in 2024. CEO Kim Dang recently said, "We expect to announce additional projects in the coming months." It's already in final discussions with customers on an additional expansion of one of its recently approved pipeline projects.
The company sees a rich opportunity to expand its natural gas pipeline network in the coming years. It expects U.S. natural gas demand to grow by 19% by 2030 when it should reach 128 billion cubic feet per day (Bcf/d). Natural gas exports (LNG and to Mexico), rising industrial demand, and other catalysts will drive that growth.
Meanwhile, there's the potential for significant incremental demand from AI data centers, which consume a tremendous amount of electricity. The base case is that they could boost U.S. gas demand by another 3 to 6 Bcf/d by 2030, with an upside scenario of more than 10+ Bcf/d of additional demand. Kinder Morgan is in a strong position to capitalize on this opportunity, given its vast pipeline system that connects key supply basins to major demand centers. Securing additional expansion projects would further enhance and extend its growth outlook.
Still some fuel left in the tank
Kinder Morgan expects its recent growth resurgence to continue in 2025. The company also appears poised to further bolster its growth profile over the coming year. Because of that, it could have the fuel to continue rallying. While it's no longer as cheap as it was, Kinder Morgan still trades at a relatively lower valuation (its free cash flow yield of 6.5% is much more attractive than the low-single-digit level of the broader market). Because of that, it could have the fuel to outperform the S&P 500 again in 2025 if its growth acceleration continues.
