Wednesday, March 13, 2013

Stock Bought: KMI

Today I bought shares of Kinder Morgan (KMI), the third-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. I previously wrote about KMI in October 2012 when I first purchased the stock. Since that time I have been wanting to increase my position, which I decided to do today.

I bought 50 shares of KMI at the price of $36.80 per share, giving me a 4.01% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $18.50, which will add a total of $74.00 to my annual dividend income. This purchase was made in my Roth IRA, so dividends and capital gains will not be taxed. When the positions in my taxable account and Roth IRA are considered together, I now have 90 shares of KMI and will receive combined quarterly dividends of $33.30. My forward 12-month dividend total increases to $2,387.

I have now used up the cash in both my taxable account and Roth IRA, so there will be no additional purchases this month. Considering the limited number of attractive investment opportunities available at the moment, I am actually glad that I will be sitting on the sidelines for a while.

10 comments:

  1. DGM,

    Great buy here. KMI is one of my top ideas right now and I'm strongly considering adding to my position very soon.

    Best wishes!

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    1. DM: Thanks -- it was at the top of my watch list and the price was reasonable, so I figured I might as well buy some shares.

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  2. Hi DGM

    Noticed the P/E shows as 107 any reason why would that be that high? (from yahoo finance data)
    Enjoy always reading your blog.
    Thanks much

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    1. Anonymous: Thanks for your comment. P/E ratios tend to be misleading for MLPs and related stocks, such as KMI (which is the general partner for KMP and EPB). For that reason, one has to consider other approaches to valuation. Using a Dividend Discount Model, I calculated a fair value of $38.50 for KMI, which is very close to Morningstar's fair value of $38.00. I have also seen other fair value estimates in the $35 to $40 range. Thus, I consider KMI to be fairly valued at my purchase price.

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  3. Nice purchase DGM! Just picked up KMI myself last week. I think it is priced right and poised to have some significant dividend growth over the next few years.

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    1. w2r: Thanks! It's good to hear you also bought some KMI and I agree that we should see nice dividend growth. If management can achieve its dividend growth projections, then I will be a happy shareholder.

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  4. Bought KMI last year for 34,x $ but think about buyin some more. Stock ist reasonable priced, PE is strong misleiding because of the MP/LP structure.

    Only question for me is if drilling/fracking goes down with low gas prices in the us. Kinder bets on exporting a bit, but i don t know if the US wants its gas exportet to china.

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    1. Ulrich: Thanks for your comment. I don't know what the future will be for natural gas and fracking, but there is a lot of debate about it. Despite that uncertainty, I think KMI is well-positioned to take advantage of favorable trends and to weather unfavorable trends.

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  5. Thanks for the information regarding dividend stocks and dividend growth. I think Kinder Morgan is a wise investment. May be I am wrong also but would like to know your thoughts.

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    1. Jessica: Thanks for your comment. I think KMI is a good investment, otherwise I would not have bought it. :)

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