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Kinder Morgan cuts dividend by 74%

Just four days after warning that its pay-out was under review, Kinder Morgan, North America’s largest operator of gas and oil pipelines, has slashed its dividend by 74% (1).

Kinder Morgan needs to cover payments on $41 billion of debt (1). The company said its board had approved the move to enable it to use cash for investment in expansion to avoid the need to issue more shares.

The announcement pushed Kinder Morgan’s shares down a further 7% just hours after trading. This followed a 30% decline in the previous five days (2), which has resulted in the company’s market value falling by $17.5 billion (1).

The shareholders, who previously enjoyed high rates of dividend payments, have suffered from the prolonged weakness in oil and gas prices.

Executive Chairman Rich Kinder said the decision was “not made lightly” and was preferable to asset sales and other options (3).

The reduced pay out follows the plummeting commodity prices. US benchmark crude oil costs just $37.51 a barrel, which is close to a seven-year low (3).

The slump in oil and natural gas prices since last summer has seen the value of many North American pipeline businesses decrease, including Enbridge, Energy Transfer Partners, Enterprise Products Partners, and TransCanada. However, over the past 12 months, Kinder Morgan’s shares have performed the worst out of the group, partly because of its higher net debt.