Big news on the front!
Kinder Morgan Inc. (KMI), the general partner of the Kinder Morgan structure of master limited partnerships, is purchasing its underlying MLPs and entities: Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB). KMI will acquire all of the outstanding equity securities for all three of the entities above.
This is huge news as MLPs have been popular investments for many dividend growth investors due to their combined high starting yield and strong dividend growth. I personally never invested in any MLPs due to their rather complicated tax structure, but I have invested in general partners due to their exposure to the energy renaissance taking place here in the US, high growth profile, strong yield, and incentive distribution rights. KMI is my largest such investment.
This news basically means the following:
- KMP unitholders will receive 2.1931 KMI shares and $10.77 in cash for each KMP unit. This results in a price of $89.98 per unit, a 12% premium based on the August 8, 2014 closing price.
- KMR shareholders will receive 2.4849 KMI shares for each share of KMR. This results in a price of $89.75 per share, a 16.5% premium based on the August 8, 2014 closing price.
- EPB unitholders will receive .9451 KMI shares and $4.65 in cash for each EPB unit. This results in a price of $38.79 per unit, a 15.4% premium based on the August 8, 2014 closing price.
- Both KMP and EPB unitholders will be able to elect cash or KMI stock consideration subject to proration.
Furthermore, Chairman and CEO, Richard D. Kinder, announced that the combined entity should be able to generate 10% annual growth in dividend during the 2015-2020 period due to significant cost savings and the elimination of the IDR.
And the best news of all: KMI will increase its dividend to $2.00 annually per share in 2015, a 16.3% increase from the last declared payout of $0.43 quarterly per share.
This transaction is expected to complete by year end.
After the transaction completes all shareholders and unitholders in any of the above entities will hold shares in one single, publicly traded security – KMI.
The combined entity will be the third largest energy infrastructure company in North America and the third largest energy company overall based on enterprise value, and will own approximately 80,000 miles of pipelines and 180 terminals.
I personally applaud this move. It simplifies the structure, reduces costs, eliminates the IDR that the underlying MLPs were having a hard time paying, and results in a solid yield with outstanding growth in the dividend. And I was always a fan of this business, as KMI is one of my largest investments. I love the pipeline model, and KMI is just a monster in this arena as it is now by far the largest midstream energy firm. The pipelines are a toll road like business, allowing Kinder Morgan to collect fees when energy products are transported across their pipelines. And the infrastructure is a huge competitive advantage in and of itself, as it’s difficult to go out and just recreate this for a competitor.
As a KMI shareholder it appears I need to do nothing here but enjoy continuing to collect my rising dividend. Shareholders or unitholders in the other entities will be affected via the outcomes listed above.
I may regret not purchasing more KMI in the low $30s as it traded not that long ago, but KMI was already a very large portion of my portfolio. And due to its high yield, it’s one of my largest single sources of dividend income. As such, I was okay diversifying in other areas of the market. Of course, a case could be made to go large with a successful company, as you can see with the way Richard D. Kinder himself has been busy buying up KMI shares hand over fist lately.
You can view the official press release here.
Full Disclosure: Long KMI.
What do you think? A fan of this move?
Thanks for reading.
Photo Credit: puttsk/FreeDigitalPhotos.net
My biggest regret is that I didn’t buy more in the low 30’s. I still may look to add to my position but can’t justify it right now after the gap up. I have held KMI and EPB going on 3-4 months.
I love Richard Kinder! KMI has been good for me too.
my KMP purchase @ 75 in Feb is looking like a pretty solid move.
I’ll be taking the $10.77/share in cash elsewhere and keeping the converted shares for the long haul. Up n Up!
I’m loving this news. This simplifies the entire Kinder Morgan company structure and adds more values to the investors. With today’s market jump up I guess the market likes this announcement.
I wish I bought more shares back when KMI was in the low $30s. Hindsight is always 20/20. 🙂
Mr. Stock Fox,
I’ve been comfortable with my KMI position for some time now, so I didn’t add when it was in the low $30s. Hindsight is 20/20. It’s still by far my largest energy investment, so I remain comfortable here.
Certainly glad to be a KMI shareholder, however! 🙂
Best regards.
Samuel,
I’m with you. Gotta love a guy who walks the walk, and earns a significant chunk of his personal income via dividends. He’s on our side. 🙂
Cheers!
Dan,
Nice! Looking solid, indeed. 🙂
It’ll be great to have all entities (and investors) under one roof. Looking forward to joining a lot of new shareholders in KMI.
Best wishes.
Tawcan,
Hindsight is definitely 20/20. I circled KMI a few times when it was in the low $30s, but I just couldn’t justify buying more when it was already such a large portion of my portfolio.
Either way, sounds like we’re winning. Regretting not winning more is a first world problem. 🙂
Best wishes!
Good day indeed. I was holding KMI, KMR, and a good chunk of the warrents which I picked up at $2. Time for some rebalancing.
This is good news for you shareholders, but I cannot believe how “unlucky” I am. I did some research over the weekend for my next buys and decided to initiate positions in DE and KMI. However, I was supposed to buy the stocks Wendesday as it is my payday. The timing couldn’t be worse :).
Btw, love the blog! Been reading for a while now. And hello from Finland! 🙂
-Ville
DM,
The market appears impressed. As for me, I am impressed with the potential for a $2.00 dividend next year.
MDP
Jon,
Sounds like you’re having a great day. No “case of the Mondays” for you today. 🙂
Thanks for stopping by!
Best regards.
Ville,
Thanks for stopping by from Finland! Appreciate the readership and support. 🙂
You’re not all that unlucky, though. Just to be in the position to have excess capital to invest puts you in rare company. Furthermore, you can still buy DE at a rather attractive valuation. I actually recently increased my position in DE, and I’ll be discussing that tomorrow.
Take care!
MDP,
I’m with you. I’m mighty impressed with a $2.00 annual dividend. KMI is my second-largest dividend payer, so this makes for a happy Jason. 🙂
Cheers!
I was just reading about it. I purchased KMP before I realized the additional tax requirements that came with it. But since I was holding KMP in an IRA, I was still not sure how it impacted the additional tax requirements. I was even thinking of selling the KMP and then investing in KMI just because I don’t have to deal with this tax stuff each and every year (if it applied).
But now, it looks like I may not have to do it beyond this year if this merger goes through and coupled with the fact that this comes with increasing dividends makes it even better.
Bummer and I just sold all of mine to buy my house. Too bad.
I thought KMR or KMP paid out shares as dividends instead of money that was used to re-buy shares which made this tax efficient in some way. Have you heard about that?
Thanks,
WE#1
I like this move from the KM group of companies as it should allow for some solid dividend growth for years to come. Sadly KIM gapped up over 10% today. KMI had been one of the better values in the markets for a while a I was able to add some in the low $30’s. I wanted to add more but KMI was over 7% of my portfolio and thats a bit too much concentration since my portfolio is getting hefty around $160k. And thats after investing around $20k since i last purchased KMI. Obviously we all should have been loading up but im happy about the future for the new KMI.
I can’t remember off the top of my head but one of them paid distributions in shares and one as a return of capital situation that lowered your cost basis. I think with those 2 you didn’t pay tax on the distributions in the year you received them but would pay when you sell with the distributions reducing your cost basis. Although if you hit a 100% payback then I think you had to pay during thst year. KMI paid regular cash dividends since its a corporation whereas as the others are registered as MLPs.
I read the details on DGI’s blog earlier, and I was definitely excited. $2.00 more per share, plus 10% growth rates! Its like I just won a mini lottery. We definitely can sit back and pat ourselves on the back for this choice, and thank Mr. Kinder of course.
– Gremlin
One of my top 3 holdings. Divi-day happy dance time! I’m used to seeing a few down days on some stocks but this is the first one i’ve seen pop double digits in a single day. Normally they appreciate slow and steady heh 🙂
Fortunately, I am an KMI investor. I am holding the shares in my registered account, so no need to worry about the complexity of TAX.
Unfortunately, KMI is one of smallest investment compare with my other holdings. I may add more units in early next year as I have some rooms in my registered accounts.
DGJ,
I don’t think you’ll have to worry. Typically, issues can arise when holding MLPs in an IRA due to UBIT, but that’s generally only when you exceed $1,000 from all sources. But your time frame is short and your KMP shares will be converted to KMI shares and cash anyhow.
Best regards!
WE#1,
KMR pays out a dividend in the form of additions shares. KMR is up the most today, which means those who have built up a sizable position in KMR via all those additional shares should be very happy. All those shares will be converted to KMI shares which will pay out a sizable cash dividend. Very nice!
I never invested in KMR because I didn’t want the shares. I wanted the cash. But KMR has obviously done well.
Cheers!
JC,
I’m with you. I’m very happy with this move, and I’m excited for their future.
KMI is a large position for me as well, as my second-largest dividend payer. And the $2.00 annual dividend is wonderful news! 🙂
Thanks for stopping by!
Best wishes.
Gremlin,
Haha. Dividends are the gift that keeps on giving, or the lottery that keeps on allowing us to win. 🙂
Take care!
Kmi and kmp are in my top 6 biggest position. It was a great day lookimg in my broker account and saw 1000€ appreciation!
Zol,
I’m dancing with you, bud. Good news for all. The big dividend increase and promises for more make me happy. 🙂
I think the biggest one-day pop I ever experienced was HGIC. I think it was like 80% or so when Nationwide announced the acquisition. Good stuff!
Take care.
FinanceJourney,
Well, as a KMI investor there is no tax complication. At least not for US investors. It’s a corporation, not a MLP. And so you’ll be trading shares, not units.
But today is a good day for KMI shareholders! Big dividend increase for 2015, and promises of more down the pipeline (pun intended). 🙂
Cheers.
I started to invest into KMI in jan $34.18 and averaged down in March ar $31.39…. obviously should’ve buy more 🙂 , but who knows….
I selected KMI because it’s not-MLP like KMP, and I don’t pay any dividend withholding tax….
Nice dividend hike ….
Can anyone that has a position in this verify the tax filing for this? I believe you get a K1 and then you need to file state tax returns with all the states they do business in as well. If you hold this in a ROTH or Traditional IRA, that would alleviate this requirement I would assume.
DD,
Nice! Gotta love that.
I wasn’t so happy with the capital appreciation as I was the dividend increase and promises of more down the line. That gives me a nice boost to the income! One big step closer to freedom, my friend. 🙂
Enjoy it!
Best wishes.
gibor,
Nice hike, indeed. KMI was the simple way to invest in the Kinder Morgan structure, capturing a solid yield and great growth. I’ve been a very happy shareholder thus far, but I suppose I should have added just a bit more in the low $30s. Another purchase might have pushed it above PM as my biggest dividend payer.
Cheers!
Kipp,
Which are you referring to? There are multiple ways to invest in Kinder Morgan: KMI, KMP, KMR, and EPB.
The taxes are complicated with the MLPs, which is one reason I never invested in them.
These two articles help explain the tax nature of MLPs:
http://www.investopedia.com/articles/basics/07/ml_partnerships.asp
http://www.forbes.com/sites/baldwin/2010/12/02/tax-guide-to-master-limited-partnerships/
I hope that helps!
Cheers.
I was one of the timid souls who sold KMI (at $32.25 in Feb). Partly, I felt I was already overweight in energy and also get nervous when matters of accounting are questioned. Can’t win them all. Happy to see those who stuck it out rewarded.
Thanks Jason, it is what I thought it was in that they distribute through a K1 and depending on the income level you may have to file alot of State taxes. That is what I remembered from preparing them during my tax internship (but it has been a few years so needed the refresher)
Saw the news last night after I got in from a long day of traveling from Germany with delays. I was starting to fall asleep while checking the news and I saw the headlines. I thought I was hallucinating from my muscle relaxers. Makes me feel fortunate to be all in on the Richard Kinder businesses, now soon to be one. I suppose I could diversify a smidge with some of the cash from KMP and EPB. It’s hard not to idolize Mr. Kinder. Not sure what to make of the scuttlebutt about “irregular” insider trading a day or two(trading days) before the announcement. Might take a bit longer to do taxes next year. Grand Rapids bound on friday.
How far back(or until when) do you need to own those stocks in order for this to have an impact on you?
Chris,
Yeah, I remember a lot of people beating up on Kinder Morgan during that time frame. I was never really concerned. I couldn’t imagine Richard having that much of his wealth invested in something shady.
But you definitely can’t win them all. There have been many investments I missed out on over the years. I still kick myself over passing up on V, WAG, and BDX over the years.
Best regards.
Very nice news, indeed ! I like very much when you give updates like this one. Do you think the fair value is around 60, considering a 7% dividend growth rate and 10 % discount rate ? How much dividend growth rate do you foresee ?
Best for you and your holdings.
Kipp,
Well, KMI is a corporation, so they don’t issue a K1. The MLPs do, however. That’s one reason I’ve avoided MLPs.
Glad I could help!
Cheers.
Christopher,
Enjoy GR!!
Sounds like you’re a very happy investor today. I think there’s quite a few of us feeling pretty good today. 🙂
Best wishes.
anti1b,
There is no exact date (end of year) on when the transactions will close; however, all of these names popped quite a bit on the news. I still think KMI is a solid long-term opportunity, however.
Take care!
Aspenhawk,
Even just a 6% growth rate puts fair value above $50, so I think there’s still plenty of value here. Obviously, we know why Richard Kinder was so busy buying up shares in the low $30s. 🙂
It’s tough to say how dividend growth will be over the next 10-20 years, but I think the 10% forecast for the next five years is reasonable. Combining a high initial yield with high growth is a surefire recipe for outstanding total returns, assuming the payout is sustainable. I think KMI will serve shareholders very well over the next decade and beyond, and $40/share still seems very reasonable to me. I’m likely not going to add here only because it’s already such a large position for me, but I don’t think it’s overpriced after the pop.
Best wishes!
Bought Kmi at 33.88 a share in April so I definitely like this move. Bought whole foods on Friday, my next stock I’m itching to buy is sea drill (Sdrl) Usually high yielding stocks are dangerous but their dividend is sustainable with growth potential.
The market seemed to like the news. It all sounded good but you never know how the markets gonna react to these sort of things. I’m very excited about the continued commitment to the dividend going forward, going as far to forecast 5 years of dividend growth was reassuring to say the least. Long KMI !
Ok, so I just realized why you are so excited! You can now own all of those companies without the hassle of the MLPs!
I love it. Great capital appreciation but even better dividend commitment. Grats to all who holds KMI !!!!!!!!
Charles,
Nice move with KMI. I think it’s a solid long-term play. Kinda wish I would have bought more, but my allocation was already quite high.
Best of luck with SDRL!
Cheers.
Captain,
I’m very long KMI as well. Gotta love a company that takes its dividend so seriously as to forecast it out for that type of time frame. Long live Richard Kinder. 🙂
Thanks for stopping by!
Take care.
A-G,
A win-win. Those who like capital appreciation should get plenty in the future, plus the big pop after the premiums were announced. Those who like dividend growth got a 16% raise for next year, with 10% raises going forward.
Those who like both probably passed out from excitement. 🙂
Best wishes!
Thanks a lot. I guess I’ll be doubling my position tomorrow.
Works for me 🙂 I think this is great news. Happy KMI buyer at $32. Long-term hold.
DM,
Loving this news, wish I owned more like you said! I can’t wait for the end of the year dividend declaration and the newly refined 2015 payouts, PUMPED! Nice work making an article about this, biggest stock news for Monday for sure. Talk soon DM.
-Lanny
Boy i wish i would have bought some KMI when it was down! There have been quite a few decent deals on the recent pullback. I chose to buy some PG, JNJ, and MCD. I believe KMI shareholders will be in a very good position going forward! Got to love Rich Kinder and his focus on growing the dividend.
I thought about adding more in the low $30s, but held off. I’m kicking myself now. I made only $400 friggin dollars by missing this train! I hate missing out on run ups. I recently created two 30 stock motifs = 60 stocks. At least I will get some action in those. I know people are worried about motif being a new company, but the holding firm is APEX, so the same organization that holds Scottrade shares. I’m loving the diversity with 60 DGI stocks. Motif is awesome! Oh well, I hope I have better luck next time on the KMI miss.
If you ever have the time, let me know what you think of these two motifs please.
https://www.motifinvesting.com/motifs#catalog=community&query=Grandma's+conservative&sort=relevance&dir=desc
Mark,
I’m with you, man. Great news all the way around. Not much to be displeased with. 🙂
To our success!
Best wishes.
Lanny,
Yeah, next year will be fantastic! I’m also pumped! KMI is getting pretty close to paying me $100 quarterly dividends. Gotta love that. 🙂
Thanks for all the support. Hope all is well in Ohio!
Cheers.
Congratulation to all holding KMI, KMP, KMR & EPB!!!
Josh,
I think you made some pretty solid moves over there, even without KMI. Especially JNJ. I’m a big fan of JNJ.
Can’t win them all. I’ve certainly lost quite a few, and I missed out on buying more KMI down in the low $30s.
Keep up the great work!
Take care.
Monty,
Those look like solid portfolios. I actually like a lot about both. Tough to choose! 🙂
Can’t win them all as far as KMI goes. But the great thing is that reaching FI at a young age doesn’t require nailing every great investment at exactly the right time. Just requires consistently saving and investing that excess capital in high-quality assets that produce income.
Thanks for stopping by!
Cheers.
Mr. Kinder is a very smart person. I trust what he’s doing. Too bad I’m not a shareholder, oh wells. Looks like you’re benefiting well by partnering with Mr. Kinder.
Cheers!
I guess I am one of the few souls out there that isn’t entirely happy with this move. I own 130 shares of KMP. Sure, 2-3 years down the road the annual dividends I receive from the new KM entity will be the same as what I currently receive from KMP, and after that I will continue benefitting from the faster growth, but in the mean time I will get hit with a tax bill and what essentially amounts to a dividend cut. I think of all the purchased companies (KMP, KMR, and EPB), KMP shareholders have the least attractive end of the deal.
KMP was one of the few companies in my portfolio that filled that “high yield” niche, and since I was already well positioned in energy companies I never felt compelled to create a position in KMI.
I thought about selling my KMP shares and taking that money elsewhere, but I think I will just hold on to them. I will use the $10.77/share cash and leave it in my brokerage account as a proxy for the dividends I would have received from KMP.
I actually purchased both portfolios at the motif. Yeah I checked and I actually only made $250 from KMI 🙁
Thanks for your input on the motifs.
I’ve been reading here for a while but this is the first commenting as I guess i have a little different take on this…
As an admittedly biased and overweighted KMP holder, I do feel that at least to some degree current KMI holders will be benefiting on the backs of current KMP. The ability to raise and project future dividends the next 5 years is largely a result of the cut in paying out the current high distributions to KMP holders (and EPB to to a lesser degree). That said I don’t plan to sell out or anything of the sort, and I think that KMI will make a good long term hold from here forward. It just seems to me like the deal is all win for current KMI holders (higher share price, dividends and div growth) and slightly more of a mixed bag for KMP holders(higher price, lower current dividends, higher div growth, plus tax implications). Maybe I can say “you’re welcome” to the KMI holders 😉
As an aside – the news of the deal wasn’t a huge surprise, but I had always assumed when/if a deal happened it would be KMP to buy out the general partner interest and end up like EPD and MMP.
I bought KMI just couple of months back and now, it looks like a smart move on my part 🙂
I’ll gladly take the hike. How nice on part of Mr. Kinder!
Best wishes.
David Tan,
I just have KMI, but I’m certainly happy with this development. 🙂
Cheers!
Henry,
In Kinder we trust. 🙂
You may not own a piece of Kinder Morgan, but you’ve got a great portfolio going on over there! 🙂
Take care.
Spoonman,
Yeah, I hear you there. I would agree that KMI shareholders probably came out the best, if only because no taxation is necessary (no shares being sold) and there is no cut in income. But I think this was due. KMP’s growth was starting to slow down, and KMI was lending them money just to pay the IDR. This is kind of a short-term pain for long-term gain type of move for KMP unitholders, in my opinion. But I wouldn’t be happy about the taxation since I use a taxable account only.
But I think you have the right idea about the cash as a proxy. Or you could look at the premium in much the same way. I think over the next few years you’ll come out ahead. 🙂
I know it’s gotta be a bit tough for you right now as you transition into FI, though. These kinds of changes can throw a curve ball in your plans, especially if KMP was a larger position. I hope the immediate cut in income doesn’t hurt you too much.
Thanks for stopping by!
Best wishes.
pacer45,
I agree with you to a degree. I think KMI shareholders came out the best because the dividend was raised significantly, though the overall growth is much on par with what was already projected. KMP unitholders will see an income cut, though you’ll probably notice KMP’s growth was slowing down. I really think you’ll come out ahead after a few years, and then from there it’s all growth.
I’m glad they didn’t buy out the GP, and since Rich owns a significant chunk of KMI I assume he did the math and this is the best way to go. But this allows me to continue my ownership and collect dividends without the MLPs headaches.
Thanks for commenting!
Best regards.
PIM,
Hey, that worked out pretty well for you! Glad to have you on board as a fellow shareholder. Long live Richard Kinder. 🙂
Cheers!
I’ve been pleased with KMI since I initiated a position in the low 30s, and even more so now with the dividend raise.
To Mr. Kinder and the dividend!
Seraph,
You did good there initiating a position in the low $30s! 🙂
I’m just as happy as you. Cheers to us, Mr. Kinder, and dividends!
Best wishes.
What a beast.
Sad I missed the KMI party 🙁
Hi!
I am actually a shareholder of KMI and this are great news for me. Unfortunately KMI isn´t one of my biggest investments. Do you think it makes sense to add now more shares to my portfolio? Finally we have to consider the raising dividend?!?! I don´t know what to do now…
Another first world problem: The dividend gets reinvested this week! Why couldn’t they wait and announce it next week? I’m going to get fewer shares now!
Greetings from Sweden!
Back in April, when KMI was trading at $32, I was deciding whether or not I should initiate a position. I really liked everything I was reading about KMI, especially the fact that CEO Richard Kinder was so heavily invested personally and the fact that he only brought home a dollar a year in salary. (Publicity stunt or not, that’s pretty cool.)
I already had CVX and XOM in my portfolio, but in the end I figured owning shares in three great energy companies instead of just two could really only be a great choice! So anyway, I bought 120 shares at $32.24 and I do believe that it’ll turn out to be a great decision!
On another note, I’ve been following your blog for nearly a year now and in the February dip I started my dividend growth journey for real, selling off about half of my Swedish stocks and bonds in favor of some great US companies. (GSK being the exception, but I buy it through the US exchange at least!)
I’m now part owner of some really good businesses and it feels great. So far I’ve invested in: AFL, TGT, MCD, GSK, PM, KMI, PG, HCP, XOM, T, KO, CVX, WMT, PEP and the beast JNJ.
I save 45-55% of my net salary for stocks, making 1-4 buys per quarter. My minimum commission in Sweden is $12.95 so I usually buy when I’ve saved up at least $2600 to keep the commission below half a percent.
When 2014 comes to an end I will have received just over $3500 in dividends (Roughly 75% from US stocks, 25% from Swedish stocks). That’s nearly three hundred dollars a month like an extra salary that I don’t even have to work for! And the best part, probably all of these companies are gonna give me a raise in 2015 even if I were to sleep on the job all year long. Is that awesome or what?
I’d like to thank you for your inspirational blog. I check in almost daily and it’s always a pleasure to read your articles.
Keep up the good work, Jason!
– Björn
Ravi,
Can’t win them all, my friend. I’ve missed out on many parties in my time. But the good news is that there’s always another party going on somewhere. 🙂
Cheers!
Michael,
I think KMI is still attractively valued. Especially with the recent dividend increase announcement. I’m not adding any more right now only because it’s already a major position for me, but for someone with a small position I still think it makes sense to buy into the low $40s, if you’re buying for the long haul.
Best of luck! 🙂
Cheers.
Justin,
That’s definitely another first world problem. 🙂
Unfortunate timing, but I guess you can’t have it all. I personally am not reinvesting here, but I can see how that would be irritating to you. Maybe a little pullback after the big drop might help out.
Cheers!
Björn,
Thanks for stopping by from Sweden. 🙂
That sounds like a great plan you have going on there. And with $12.95 commission, I would also try to make sure my transactions were a bit larger, like you’re doing. You’re obviously doing great with the savings rate, and dividend income. Your dividend income for this year is similar to what I earned last year, so you’re right behind me. I suspect your 2015 will look much like my 2014, or even better! 🙂
You made a great move there with KMI. I purchased KMI in various lots, starting in the high $30s and averaging my way down. I’m quite happy with this move and with the company. You have to love the pipeline business model, and nobody is bigger than Kinder Morgan here.
That’s a great portfolio you have there with the American stocks. I think I own almost all of them with you. So my money is where my mouth is.
Appreciate all the support! Keep up the great work over there. Seems like you’re on a wonderful path to FI!
Best wishes.
Hi Jason,
I saw this news late Sunday. The $2.00 dividend is music to my ears. After trading yesterday, KMI became the single largest holding in my portfolio, just edging out VZ. That may have changed today as KMI was giving up a couple percentage points earlier. Anyways, the high starting yield plus high dividend growth makes for a great investment. I also put a lot of faith in Richard Kinder and love that he’s laid out a dividend plan several years into the future. It’s this confidence, high yield and high growth that makes me want to add a few more shares even after the latest rise in price.
I am not a Kinder Morgan shareholder but I wish I was. I am thinking of buying as I’m assuming KMI will only be going up. In an earlier comment, you guys put the fair value at $50-60/share. How did you get that number?
Leave it to me to be the timid naysayer, but what do you all think of KMI’s payout ratio and debt? Their debt is as big as their market cap and their payout ratio is 149%. Do you think this will hurt the company, despite the forecasts? If they are truly paying more than they are taking in, what if they need to use their revenue to pay down their debt? No more dividends? I think that is actually why I passed them up in the past, but I’d like to know what all of you think.
Brent,
Nice! I was hesitant to add more and make KMI one of my two largest positions, but maybe that wouldn’t have been a bad idea. 🙂
Sounds like you’ve got healthy dividends coming in from both KMI and VZ now. That’s dividend income on turbochargers!
And I’m with you on Richard Kinder. You just gotta love a guy who earns his income via dividends. He definitely walks the walk.
Cheers!
Joey Batz,
I got the fair value number from a quick DDM analysis, using the $2 payout and a 6% growth rate. A 7% growth rate pushes it even higher.
I find the debt load to be moderately concerning, but not totally surprising considering the build-out of their infrastructure. MLPs in general are highly leveraged entities due to the makeup of their entities with heavy assets and stable contracts.
As far as the payout ratio goes, that’s misleading because KMI was always tough to apply a typical P/E ratio on. Much of their income came via IDRs from the underlying partnerships, as well as direct distributions. MLPs are a pass-through entity for tax considerations with large depreciation expenses, so using earnings to value MLPs (like REITs) is difficult.
I hope that helps!
Best wishes.
KMI is currently my largest holding in my small but growing portfolio. I purchased them because of the confidence that you have in the company. I also work in the trucking industry and they are a customer of our’s so I’ve learned a lot about their business. I currently own 20 shares and with this news and the potential that goes along with it I want to add more shares.
Daniel,
Glad you initiated a stake in KMI! As you know, I put my money where my mouth is. And KMI is a company that I have a lot of faith in. 🙂
Great to have you on board as a fellow shareholder. Long live Kinder!
Cheers.
Bought my KMI back in May for $33.61. I’m lovin this. This has been one of my best divi holdings over the last 6 months, and I’m looking forward to the increases coming up. Wish I had more than 210 shares.
Tom,
Sounds like you’re a very happy shareholder! I’m right there with you. 🙂
I also wish I had more than 180 shares, but it’s already my second-largest dividend payer now.
Keep up the great work.
Best wishes!
That awesome! Always nice to simplify things and cut costs!
And that dividend increase will give you ~$50 more a year! Sweet!
Can’t wait till the next time a company i hold wants to give me more free money for holding onto them!
Dividend Wisp,
I’m with you all the way! More free money is the name of the game. 🙂
The best part of all of this is that we receive these raises multiple times per year, and for doing nothing at all. Gotta love the life of a dividend growth investor!
Best wishes.
I will take another look at KMI. I was not interested earlier because of the convoluted capital structure. I don’t like financial statements that require tons of effort to untangle things like that, so I just move on to something simpler. With that complication gone, I may have some interest now.
S.B.,
I agree that this probably opens KMI up to a whole new group of investors, which might bode well for them and current shareholders. Gotta love the idea of being a part of the third biggest energy company in America with 80,000 miles of pipeline.
Best of luck with the research. 🙂
Cheers.
If KMI dividend growth @ 10% a yr thru 2018 I get a div of $2.93 which would have a forward yield of over 7% @ todays share price. Still value in todays share price, and may pullback to the high 30’s. Any thoughts? Also BP, looking good here!!!!
j-harr,
I think KMI definitely still has value here. In fact, I think one could probably do well buying all the way into the mid $40s or slightly higher.
However, it’s tough for me to buy when it’s already such a large portion of my portfolio. As it stands, it’s currently my second biggest dividend payer. So I have to balance that out a bit.
But if I had a small position I’d definitely be interested here.
Have fun shopping!!
Cheers.
DM, just so i am not confused can I own KMI in a roth tax free or do i have any worries with fees and taxes? Does it basically operate as a regular stock like aapl in a roth?
bumbleb572,
Correct. KMI will work like any other ordinary stock. No special tax considerations inside of a Roth.
Take care!
Any red flags for this company on the long run? As a new long term investor I’m wondering if now would be a great time to invest in this company given the yield is now over 7%. Are the fundamentals still the same
ash,
A dividend’s sustainability/risk shouldn’t be determined by a stock’s yield. A yield is derived from the amount of the dividend divided by the share price. So the market might be pricing in risk, but, ultimately, a dividend’s sustainability is decided by a company’s underlying ability to pay that dividend.
Kinder hasn’t changed much. The only thing that I think concerns some folks is that they still report financials like an MLP even though they consolidated under a normal corporate structure. That said, those results haven’t really changed much since most of Kinder’s profit is derived from fee-based businesses. So if you didn’t trust the results before, you might not trust them now. Conversely, if you can understand how they reported profit before, it’s still the same now.
Hope that helps!
Take care.