Kinder Morgan Inc (NYSE:KMI) stock fell 0.19% (As on March 26, 11:26:11 AM UTC-4, Source: Google Finance) Analyst Neal Dingmann of Truist downgraded KMI to Hold from Buy with a price target of $20, down from $22. The company’s leading natural gas operations historically have caused the stock to trade at a premium but peers have done a good job of closing the gap, resulting in what could be a lesser premium going forward, the firm tells investors in a research note. As a result, Truist’s Neal Dingmann anticipates relatively sequentially lower share repurchases this year along with a dividend that is likely to minimally grow during the year. The analyst forecasts growth out of Kinder’s (KMI) natural gas segment, but sees limited Products Pipeline, Terminals, and CO2 segments growth, with a more in-line trading multiple prompting a new Hold rating. While Truist’s Dingmann lost some bullish on Kinder Morgan’s upside potential, it’s easy to see why he believes shares could rise more than 11% from their current level. The stock has a dirt-cheap valuation.

Kinder Morgan projects it will generate $2.26 per share of distributable cash flow (DCF) this year, a jump of 8% year over year. Its DCF forecast rose thanks to its recent acquisition of STX Midstream. At its current price, Kinder Morgan sells for less than 8 times DCF, a proxy for free cash flow. Put another way, it has a free cash flow yield of more than 12%. That’s significantly higher than the broader market indexes (the S&P 500 trades at about a 4% free cash flow yield while the Nasdaq-100’s is around 3%), implying it’s extremely cheap.

Kinder Morgan’s dirt-cheap valuation also goes some way to explaining why it can offer such a high dividend yield. The company can easily support that big-time dividend (its payout level will be around 50% of its DCF this year). That’s giving it the flexibility to increase its dividend again this year (it expects to raise the dividend by around 2%, its seventh straight year of growth).

Meanwhile, the company fell short of expectations when it released its annual results. The revenue fell 3.6% short of analyst estimates at US$15b, and statutory earnings of US$1.06 per share missed forecasts by 6.2%. Kinder Morgan are now predicting revenues of US$17.3b in 2024. Per-share earnings are expected to grow 19% to US$1.28. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$17.8b and earnings per share (EPS) of US$1.29 in 2024.