For my first purchase 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. My most recent previous purchase of KMI was in September 2013.
I continue to think that KMI is undervalued. 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 $37.84. Morningstar gives a fair value of $41.00 and a 4-star rating. The average of those two estimates is $39.42, which implies a 13% margin of safety at my purchase price.
I bought 60 shares of KMI at the price of $34.40 per share (no commission paid; I had a free trade), giving me a 4.77% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $24.60 from this purchase, which will add a total of $98.40 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and it reduced my cost basis by a little over 2%. I now have a total of 225 shares of KMI (80 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $92.25. My forward 12-month dividend total increases to $3,031. Kinder Morgan remains the second-largest position in my portfolio (6.0% weight).