8 shares KMI, 5.21% yield, $13.12 annual income (purchased today)
I wasn't planning to purchase additional KMI stock for a while because I don't want my position getting too large, but I felt the market was offering a nice opportunity today.
To be honest, I get a somewhat unsettling feeling with KMI. It happens to be a fairly difficult business to understand, it is prone to bear attacks, and it's tough to actually value the shares. These aren't the sort of traits I usually look for in a long term holding. Kinder Morgan Inc. doesn't have a whole lot of historical data in which to make a comparison since it began trading on public exchanges during 2011. Because of that (and other factors) I had to rely solely on the Dividend Discount Model for share valuation. Normally I would not trust any single valuation technique enough for exclusive use...
All that being said, it is hard to top KMI's income producing capabilities. What we have here is a high yield stock expected to grow dividends in the high single digits. Kinder Morgan management told us in advance they will be raising dividends by 8% this year. A 5% yield growing 8% is a recipe for success I simply cannot over look. KMI has very nice assets, a plan to expand rapidly, is big enough to absorb competitors via future acquisitions, has a CEO I very much admire, and a stock price trading 20% below my DDM fair value calculation. KMI is a bet on the American energy boom. KMI is a bet on natural gas. The CEO has his personal fortune tied to the company and I believe he is the right man to make it all work. It's hard to find this combination of yield and dividend growth anywhere else.
While KMI is by no means a dividend champion and has a bit more risk than I typically accept, ultimately I think this investment will be a good one.
I have many free trades available and did not pay commissions today (or with last week's FRIP purchase). I plan to continue small weekly purchases until my supply of free trades run out.
Symbol: KMI
Core Position: No
Speculative Position: No*
Expectations: Steady income; 5% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling: Rich Kinder retires, business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations
*borderline speculative
CI,
ReplyDeleteI feel the same way you do. I keep telling myself to buy Clorox, Coke, JNJ, and Exxon, and ultimately I feel compelled to buy Kinder, BBL, and now ESV. I may need some kind of therapy session. Oh well my sharebuilder purchases are set. Maybe next week I will feel differently. Lol
Yeah I know what you mean. I felt KMI was the most attractive option today so I bought it. If they increase the dividend next quarter I think sentiment will rise. We'll see.
DeleteI'm going to start following you if you don't mind.
Cheers!
CI,
ReplyDeleteI hear you on the unsettling feeling and yet getting attracted to the income producing capabilities of pipelines. I think, in the long run, its still a good call to buy at these levels. I ended up initiating and adding to my position in KMI at the $35-$36 level and wish I had waited. Tempted to add more and average down at this level.
Best wishes
I never timed KMI exactly right either. I still think it's worth somewhere around $37, but it is hard to put a price on it as I've mentioned many times over the years. Morningstar lowered its fair value from $40 to $34 recently. The market offered a $30 price on it the other day...
DeleteI plan to buy more as well at this level.
ReplyDeleteI suppose I would consider nibbling one time (since these purchases are small) if it continues to decline. The income potential is quite strong with this one!
DeleteGreat purchase as I think Kinder is well set up for significant growth over the next few years. At this point I am well below my overall cost basis and would love to average down, but just don't know if I can put any more towards KMI at this point. Getting tougher to resist though...
ReplyDeleteYes I feel the same way. Just about everyone could average down right now. For me it comes down to allocations.
DeleteI feel you here. I want to buy more but it is one of my largest holdings.
ReplyDeleteI actually SWAN with KMI. KMP's longer record gives me a bit more relief - although, you're correct that it's hard to value. Rich Kinder is probably my favorite CEO, however, and he's putting his money where his mouth is. That also kind of ties in to one of my un-quantifiable company characteristics I look for - invest where the money is. Buffett has a big stake in KO, for example, the Waltons and Johnson heirs own a shitload of WMT and JNJ. I'm invested in those companies (except for JNJ). Same story with KMI.
The strong CEO is a major reason to think highly of Kinder Morgan. I listen to KMI/KMP/EPB conference calls when I have time and actually enjoy listening to what Rich has to say. I like how he is down to earth and can explain a complex company in an easy to understand way. I once wrote a post (that I never published) about my three favorite CEOs and Mr. Kinder was on it.
DeleteI initiated a position this week in KMI. My only concern is the PE of 27. Forward PE is 21. Still a little high but you can't go against a high yield with future growth.
ReplyDeleteRichie, since it's the GP of Kinder Morgan Partners, you shouldn't evaluate on the PE. Cash flow is a more appropriate metric (as is FFO for a REIT or DCF for a regular MLP).
DeleteKMI is still dropping down assets to the LPs, but I agree with you that the p/e seems kind of high. However dividends are paid with cash and that is ultimately what matters (cash flow) to me since I am buying this for income. Not the easiest business to understand. A lot going on here.
Delete