Today I bought shares of Kinder Morgan, Inc. (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 made previous purchases of KMI in October 2012 and March 2013.
I consider KMI to be fairly valued at the current price, making it a decent purchase in the context of a broader stock market that is near an all-time high. Using a Dividend Discount Model with a dividend growth rate of 10% (which is the company's long-term target) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $43.07. Morningstar gives a fair value of $41.00 and a 3-star rating. The average of those two estimates is $42.03, which implies a 7% margin of safety at my purchase price. In general, I think KMI is a decent purchase whenever it yields over 4%.
I bought 40 shares of KMI at the price of $39.15 per share plus commission, giving me a 4.07% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $16.00 from this purchase, which will add a total of $64.00 to my annual dividend income. The stock goes ex-dividend next week, so these shares will pay their first dividends to me in mid-August. This purchase was made in my taxable account by combining $700 in new capital with $900 in dividends that had accumulated over the last few months. Given that I already owned 40 shares in my taxable account and 50 shares in my Roth IRA, I now have 130 shares of KMI and I will receive combined quarterly dividends of $52.00. My forward 12-month dividend total increases to $2,503.
After a few months of inactivity it was nice to finally make a purchase. I would have preferred to buy a deeply undervalued stock, but good deals are hard to come by in the market these days. KMI seemed to be one of the better opportunities available, so I deemed it worthwhile to increase my position. It is now the second-largest holding in my portfolio, with a weight of 5.8%. My next stock purchase will depend on when I receive my moving expense reimbursement and associated supplement; the paperwork has been submitted but I was told it would probably take 2-3 weeks to process. Thus, I will likely have new capital for investment by mid-August.