Yesterday I made two purchases; I will report one now and the other this weekend, when I have more time. For my first purchase I bought shares of Kinder Morgan, Inc. (KMI), the fourth-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. This was my fifth purchase of KMI in 2013.
The stock price declined sharply this week after management released its financial expectations for 2014 (news release). Management expects high, mid, and low single-digit percent dividend/distribution growth for KMI, KMP, and EPB, respectively, in 2014. There seem to be two reasons for the sell-off among those stocks. First, the dividend/distribution growth projections were apparently lower than expected by some analysts. Second, the relatively flat revenue and distribution projections for EPB were disappointing to some investors. I think the sell-off was an over-reaction and the Kinder Morgan family of companies remains well-positioned for the future. I deemed KMI to be undervalued before the sell-off, so this decline made it even more undervalued (in my opinion).
I bought 50 shares of KMI at the price of $32.835 per share plus commission, giving me a 4.97% yield on cost for this purchase and reducing the cost basis of KMI in my taxable account (which is where I bought these shares) by 4.3%. I combined $1,475 of new capital with existing cash in the account to make the purchase. At the current dividend rate, I can expect to receive quarterly dividends of $20.50 from this purchase, which will add a total of $82.00 to my annual dividend income. I now have a total of 275 shares of KMI (130 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $112.75. My forward 12-month dividend total increases to $3,693. Kinder Morgan is now the largest position in my portfolio (7.0% weight), with NSC dropping to second place. Given its size in my portfolio, I will likely refrain from buying additional shares of KMI for a while.
great buy. I posted something about KMI also check it out.
ReplyDeleteFFd: Thanks! Your blog post provides some helpful information and I'm glad you were able to pick up an extra share at a great price via FRIP.
DeleteNice buy. I noticed the dip. If KMI stays around these levels for another month I may just go ahead and add more. It's hard to find undervalued stocks right now.
ReplyDeleteAAI: I agree, undervalued stocks are few and far between at the moment, so when I saw this dip I felt compelled to jump on it.
DeleteI also picked up some KMI yesterday, although you got in a bit cheaper than me. I also think KMI is at a good value here and was already thinking of adding before the drop. 5% dividend even growing at only 8% is still fine with me. Especially given all of the projects that are in the works across the companies.
ReplyDeletePIP: Congrats on taking advantage of the dip, too. Like you, I'm also satisfied with a nearly 5% yield and 8% dividend growth, which is difficult to find elsewhere.
DeleteEverybody seems to be buying KMI or talking about it this week, nice buy :)
ReplyDeleteLIC: Thanks! It turned out to be one of the better opportunities available, so I guess many investors jumped on it.
DeleteI am keeping an eye on KMI as well and may add to my position in the near future. Considering I didn't get an 8% raise at my day job I think an 8% dividend raise sounds pretty darn good if you ask me.
ReplyDeleteCaptain: Good point -- I would be shocked if I got an 8% raise at my job. If my dividend growth stocks can give me an average 8% increase every year, then I'll be a happy investor.
DeleteDGM,
ReplyDeleteNice grab here. It's sitting significantly below my cost basis and really tempting me. I wasn't planning on adding to KMI, but these prices are hard to pass up. You've got a really nice sized position in the company now. Those KMI dividends are going to be very hefty. Nice! A 5% dividend with 8% growth (albeit lower than 12%) is very attractive.
Best wishes!
DM: Thank you! That dip pushed the unrealized loss on KMI to over 10% in my taxable account, which was another motivating factor behind my purchase. It's nice to get a chance to average down and substantially reduce my cost basis. Even if the stock declines further or stays relatively flat, I'll be collecting a pretty sweet dividend every few months.
DeleteExcuse a beginners question...I see everyone jumping on KMI/KMP/KMR, how does it different from other when it comes to its p/e evaluations. As said, I just getting my hands around understanding how to evaluate individual stocks if its righly priced for purchase. In general the concencus seems to be that, if a stocks p/e is above 20, then its over priced (atleast from p/e valuation point). How is KMI different and why we shouldn't be concerned abt p/e > 20 in this case. Thanks in advance in helping me understand
ReplyDeleteAnonymous: For MLPs and MLP-related stocks (such as KMI/KMP/KMR), the earnings behind their P/E ratios are misleading, which is why they are generally valued based on cash flow measures. The same is true for REITs. As a result, I look at dividend growth projections, historical fundamental comparisons, and fair value estimates from various sources (Morningstar, S&P, Value Line, etc.) to get a rough idea of a stock's valuation, but I admit that it can be a tough judgment.
DeleteI've always had a difficult time figuring out what shares of this company are worth, but at $32.XX it appears extremely attractive! Funny how with the new guidance I still expect increases most quarters. Not much has changed, although I was reading up on EPB and that situation is a red flag.
ReplyDeleteCI: It is difficult to come up with an accurate valuation for KMI; in some respects it ends up being more of a qualitative judgment than a quantitative one. I thought the financial expectations for 2014 were decent, except for EPB. Fortunately, KMI's stake in KMP helps to compensate for lackluster performance by EPB.
DeleteNice snag! I love KMI. I also picked up some more shares last week around the same price. It's now my biggest position, but I'm still considering adding to it.
ReplyDeleteI like to think of it as a super-charged utility - high current yield with a high DGR. Can't believe it's yielding almost 5% now. Gotta love those quarterly increases.
Warrior: Thanks! With KMI now being my biggest position, too, I'm leery about buying more shares until its weight in my portfolio goes down a bit. However, I'll be raking in some nice quarterly dividends that will help super-charge the rest of my portfolio through reinvestment. :)
DeleteHi DGM,
ReplyDeleteI'm looking to buy some KMI but one thing that always confuses with this is the difference between KMI, KMP and KMR.
Its very tempting to jump at current prices.
investlikeafool: Thanks for your comment. The Kinder Morgan family has a few different members. KMI is a C-corporation that owns the General Partner of KMP and EPB, and pays regular dividends. KMP (also EPB) is a Master Limited Partnership (MLP) that pays distributions, and investors get a K-1 form at tax time. KMR is the same business entity as KMP except distributions are paid in shares rather than in cash; i.e., distributions are automatically reinvested in the stock. I hope this helps.
Delete...any bad news today?
ReplyDelete