This post was updated at 4 p.m. ET to include additional analyst commentary.
When looking at Kinder Morgan (KMI), analysts and investors alike seem to agree on one thing: Practice caution.
The Texas-based energy company is facing pressure from all sides due to low energy prices, and it recently announced it is increasing its stake in Natural Gas Pipeline Company of America (NGPL) to 50% from 20%. Shares of Kinder Morgan are down over 50% year to date, yet as of Thursday morning, of the 21 analysts covering the company as surveyed by Bloomberg, 16 have Buy ratings and five have Hold ratings.
Investors wonder how the company will continue to pay high dividend -- roughly a 10% yield -- while also meeting its own operating obligations as well as debts acquired through NGPL.
"One of the issues with Kinder Morgan at this stage right now is that on their third quarter conference call they lowered the growth rate on the dividend to 6% from 10%," Shneur Gershuni, an analyst with UBS Securites told Real Money on Thursday. UBS Securities maintains a Buy rating on Kinder Morgan but it lowered its price target to $39 from $43 in response to the lowered dividend growth expectation for 2016 and the likelihood that the company will tap capital markets for debt and equity.
Making matters worse, the company did not outline its expections for 2016. In an environment where dividend growth rates are lowered and leverage ratios are high, it causes investors to question if the company is expectiing lower EBITDA, Gershuni said. UBS expects to see EBITDA of $7.9 billion in 2016, which would represent a 5.8% increase over 2015 expected EBITDA.
The company also faced a change in its credit outlook to negative from stable by Moody's earlier this week in a move Richard Steinberg, CIO of HSW Advisors, called "a shot across the bow" in an email to Real Money.
"We believe the company could take any combination of the following steps to sustain (investment grade) ratings: lower the dividend, sell non-core assets, participate in an equity-funded deleveraging transactions, or find a more creative solution to help bridge the funding gap and meet leverage targets until major projects come online," Matthew Anavy of JP Morgan Securities wrote in a note on Tuesday.
Lowering Kinder Morgan's dividend would be a punch in the face to investors who rely on its high yield, Frank Curzio an independent stock analyst formerly with Stansberry Research wrote in an email to Real Money. Curzio does not have a stake in Kinder Morgan.
There are alternatives for Kinder Morgan outside of lowering its dividend.
"We believe the scenario of 0% growth for two quarters to help ease fixed income investor concerns and then a catch up to 6% is increasingly a likely scenario that we believe management may pursue," UBS's Gershuni wrote in a note on Tuesday.
The company could also issue debt to pay the dividend, but it is likely to find debt issuances will be more expensive, due its revision by Moody's as well as the credit agencies re-evaluating all energy-related companies in early 2016.
Curzio also points to some financial engineering steps Kinder Morgan could take, but investors may not be willing to sustain the tumult.
"They may even create an additional 'subsidiary' (master limited partnership) to fund KMI," Curzio said, but the move would be like "putting a Band-Aid on a gunshot wound." Master limited partnerships are said to provide tax-advantaged income to their investors but the instruments become complicated when energy prices are low and early promises of high payouts come under question.
"In the end, KMI will have to cut their distribution," Curzio said. "They are loaded with debt and earnings will remain depressed for years."