Thursday, February 25, 2016

Watch List: Kinder Morgan

If you’re like a large handful of investors right now, you’re probably asking yourself if it’s a good idea to load some of your cash into Kinder Morgan. The stock that was only recently trading for more than double its current value finds itself at an impasse as it has now plummeted to a measly $17.71/share over a few short months. This presents a chance for dividend growth investors because even though they slashed the high dividend payment to only 2.88% now, it is now trading at a huge discount. Also, the big man Mr. Buffett decided to load his eggs into their basket at the discount price. You’d almost think that the stock was being sold at Walmart on rollback!

The question then becomes whether it’s too good to be true. A stock giant such as KMI with their strong history and all of their assets for such a low price? What’s not to like?! Sure, it may not pay what it used to into our dividend growth portfolios but it still pays over the bottom line in my book (anything over 2.5% is good in my mind). After all, if it’s good enough for Buffett, why shouldn’t that be the case for me?! I’m kidding – I’m not silly enough to decide to go in on a company simply because the headlines told me that Buffett wanted a piece of the action.

Let’s get down to the numbers then. KMI is still a hulk in the oil/pipeline/natural gas industry. They have some of the best pipe lines that money can buy and a competitor would have to spend “boocoo” bucks in order to even attempt to replicate what they have. In addition, even if oil is low priced currently, until we come up with alternatives to it, we’re stuck with it as a means of which to get around! Let’s also not forget that even though oil is their main game, they also use a large portion of their pipelines to transport natural gas and they have reserves of cash sitting in their bank that seems to have been waiting to be used for a situation just like this.

The next question should be whether or not the still have any room to even make dividend payments in the future. Luckily, even after their dividend cut, their payout ratio sits at 69.4% which is still not absolutely terrible. This leaves some room for growth even with their slashed budget due to low oil prices. This is where I have to pump the brakes though. Even though the stock itself looks like it could take off in the near future and ensure a good capital gain, the dividends should be our foremost concern. Let’s look at the trends.

KMI Dividend Trends:
Raising dividend until 2000 when it dropped to a much lower payment
Raising trend from drop in 2000 until 2008 when dividend stopped completely for a series of years
Restart of dividend payments in 2011 and raising until 2016 when they reduced percentage of dividend once more

These trends do not support a healthy growth line like one would like to see. Even though their dividend payments have been at very high percentages when they have been at their highs, there are a lot of interruptions as shown above by either a smaller payout (slash) or a complete stop in payments. This is not at all what I want in my Cookie Jar portfolio when I think of stocks that I want to rely on to continually raise dividends. Therefore, they are not worthy of any further analysis when so many other more reliable dividend payers are at my fingertips. A lot of people may judge me for stopping here and not pursuing this company further but with such an incredibly volatile history, the last thing my up and coming portfolio needs is a long bet that has already proven that it can’t be relied on. With that said, KMI as it stands today will not make their way into the Cookie Jar regardless of Mr. Buffett’s acquisition of a large handful of their shares.

Sorry, KMI – maybe another day.

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