Key points: Kinetik is a midstream energy company operating in the Permian Basin that's set to benefit from the recent surge in energy prices. The stock already pays a hefty 7.1% dividend that the company expects to grow by 3% to 5% this year. The payout will grow even bigger next year as increasing cash flows trigger a bigger dividend growth plan. Analysts are starting to love the stock and Raymond James sees it as a takeover target. Midstream energy company Kinetik Holdings (KNTK) already pays a monster dividend and had plans to grow it significantly over the coming years. With natural gas and oil prices surging from the Iran conflict, the payout could be set to grow even more than planned. I am a buyer. Currently, Houston-based Kinetik pays a 7.1% dividend yield, higher than most of its peers in the midstream space. The shares are on the move this year, up 26% so far as the jump in oil and natural gas attracts new investors to energy stocks. The company was formed in 2012 as EagleClaw Midstream and has rapidly grown through acquisitions, with the pivotal one being the merger of EagleClaw and Altus Midstream four years ago. That acquisition made Kinetik the largest publicly-traded midstream energy company serving the Delaware Basin, the western, deeper portion of the Permian Basin. Why Kinetik is different What sets Kinetik apart from more well-known midstream energy companies like Kinder Morgan, Enterprise Products and Energy transfer is its greater price sensitivity, something I believe investors are going to want this year. Kinetik is more upstream focused than the others that have long-haul pipelines as a primary business. Kinetik's businesses are natural gas and oil processing and storage, as well as the water handling and disposal systems needed in fracking. With prices surging, its clients are set to get a whole lot busier this year in the form of drilling more wells for oil and natural gas. That should give a boost to Kinetik's business as well. How much of a boost will depend on the outcome of the Iran conflict and whether the Strait of Hormuz will reopen to regular flows anytime soon, relieving pressure on global energy infrastructure. The war lifted U.S. natural gas futures by 11% last week. WTI crude futures just posted the best week in their history, jumping more than 36%, and topped $100 a barrel this week. Even if the war is resolved in some way in the coming months, a new higher geopolitical premium could keep prices, on average, more elevated than in past years. Kinetik shares over the last five years have returned 21% annually, above the 14% annual return of the S & P 500 but trailing shares of peers Energy Transfer and Kinder Morgan, which have returned 28% and 22%, respectively, over the last five years annually. Big dividend growth ahead That underperformance may be about to change. Here's why. Kinetik's payout is near the highest among competitors and set to go higher, even before accounting for the recent surge in energy prices. On the company's late February earnings call — taking place before the Iran war broke out — Kinetik's Chief Financial Officer Trevor Howard said the company plans to grow the dividend by 3% to 5% annually until its dividend coverage ratio reaches 1.6 times. Then the payout growth should "track" earnings growth, he said. The dividend coverage ratio — which measures profit divided by dividend paid — is currently 1.2, meaning that the company has about 20% more in earnings than what's needed to cover the dividend. CEO Jamie Welch said on the earnings call that the ratio has "a trajectory that is on the incline over the course of this year" and should hit "right around 1.5 times" toward the end of the year. So you've got a 7 percent yield that's going to grow 3 to 5 percent and then ratchet up to 7% growth likely starting in 2027. Wall Street's view Analysts are starting to turn bullish on the Kinetik story with Raymond James upgrading the shares to outperform in January. "We view the shares as offering an attractive total return opportunity," wrote analyst Justin Jenkins in a note. He added the company "could be a realistic takeout target for several midstream players looking to aggregate Permian NGL barrels." The Raymond James upgrade follows a bullish initiation by Jefferies in December. "KNTK needs to rebuild confidence, but shares undervalued under our conservative 'base case'," wrote analyst Julien Dumoulin-Smith. The stock has 11 buy ratings, five hold views and no sell ratings. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. 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