This 3.5%-Yielding Dividend Stock is Betting Another $5.4 Billion to Help Fuel the AI Power Revolution

AI power demand has emerged as a massive growth megatrend in recent years. Data center developers are scrambling to lock up the power they'll need to support their expansion. That's driving the need for new infrastructure, including natural gas power plants and additional pipeline capacity to supply them.

Kinder Morgan (NYSE:KMI) has emerged as a key beneficiary of surging gas demand. The company currently has the largest backlog of natural gas projects in its history after adding $5.4 billion of new projects during the third quarter. That should give the pipeline stock plenty of fuel to grow its 3.5% yielding dividend in the coming years.

Adding $5.4 billion of additional fuel to its growth engine

Kinder Morgan recently reported its third-quarter results, which included an update on its expansion project backlog. The leading natural gas infrastructure company ended the period with $14.4 billion of capital projects in the backlog. That's up $4.7 billion from the second quarter after it added $5.4 billion of new projects and placed $700 million of projects into service. Of that total, $13.2 billion is natural gas expansion projects; it's the largest gas infrastructure backlog in its history.

The most notable recent additions are:

• Southeast Connector Project (SEC): Kinder Morgan has secured enough long-term capacity projects to build the 470-mile, 2.6 billion cubic feet per day (Bcf/d) pipeline to support growing gas demand in the Southeast, one of the fastest-growing data center regions. The company expects to invest $3.1 billion toward its share of the project's costs and to complete it in phases starting in the fourth quarter of 2030.
• Permian Link Project: The company will build a 434-mile, 2.8 Bcf/d pipeline to serve new power generation for a large data center customer. Kinder Morgan expects to invest $1.6 billion for its share of the $4.2 billion project, which it anticipates placing in service in the third quarter of 2030.

Those are two of the largest gas pipeline projects to be constructed in decades. Kinder Morgan is also building two additional phases of the Creekside Lateral project to support data center and industrial customers, and has approved several additional smaller projects.

Clear growth through the early 2030s

These latest project additions significantly enhance and extend Kinder Morgan's growth outlook. The company already had several gas pipeline and other expansion projects underway that it expected to complete through the end of the decade, including South System Expansion 4 ($1.8 billion), Trident ($1.8 billion), and Mississippi Crossing ($1.7 billion), with phased in-service dates between the first quarter of 2027 and the fourth quarter of 2029. Its latest projects extend its visibility into 2032, as SEC will come online in annual phases.

Long-term contracts support its backlog, providing significant visibility into future earnings. The company estimates that its $14.4 billion backlog will generate $2.5 billion of future annual earnings once all phases come online. That's a meaningful boost from the $8.6 billion it expects to earn this year (nearly 30%). While that's spread over several years, it shows the company's long-term growth potential.

A high-octane dividend stock

Kinder Morgan has transitioned from a low-growth, yield-focused investment to a company capable of delivering stronger total returns over the next five years. It can deliver an above-average and growing dividend and healthy earnings growth as it executes its current expansion projects. Meanwhile, the company still sees additional expansion opportunities coming down the pipeline that would further enhance its growth. These features make it a compelling way to play the AI power boom.

Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.