I added to my position in Kinder Morgan Inc (NYSE:KMI). Kinder Morgan has been hard to miss if you've been watching the business news lately. Kinder Morgan, which was the parent company for Kinder Morgan Energy Partners LP (KMP), Kinder Morgan LLC (KMR) and El Paso Pipeline Partners LP (EPB), announced that it was consolidating all its businesses under one roof which is Kinder Morgan Inc.
KMI runs 80,000 miles of pipelines and 180 terminals and is now the third-largest energy company in the United States after Exxon Mobil (XOM) and Chevron Corp (NYSE:CVX). I ended up adding 40 shares to my portfolio (bringing my total to 100 shares in KMI) at a price of $38.50/share. This increases my annual dividend income by $68.80.
Corporate profile (from Yahoo Finance)
- Warning! GuruFocus has detected 7 Warning Signs with KMI. Click here to check it out.
- KMI 15-Year Financial Data
- The intrinsic value of KMI
- Peter Lynch Chart of KMI
Kinder Morgan, Inc. operates as a midstream and energy company in North America. It operates through Natural Gas Pipelines, CO2KMP, Products PipelinesKMP, TerminalsKMP, Kinder Morgan CanadaKMP and Other segments. The company owns an interest in or operates approximately 80,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, carbon dioxide (CO2) and other products; and terminals store petroleum products and chemicals and handle products, such as ethanol, coal, petroleum coke, and steel. The company was formerly known as Kinder Morgan Holdco LLC and changed its name to Kinder Morgan, Inc. in February 2011. Kinder Morgan, Inc. is headquartered in Houston, Texas.
Recent buy decision
Kinder Morgan is one of the best ways to play the energy boom in North America and the decision to add to my position has been an easy one.
- Kinder Morgan, which was a leader in the MLP industry, has decided to consolidate and bring everything under one roof – which removes all the confusion for the shareholders on which stock ticker to choose.
- The consolidated company is more focused on cash flow and provides shareholders with increased revenues year after year.
- With the integration of EPB pipelines, KMI's 54% of the business now consists of natural gas pipelines (largest in North America) – which I am bullish on.
- In addition, KMI is the largest independent transporter of petroleum products (2.3MMBbl/d), largest CO2 transporter (1.3 Bcf/d), largest independent dry bulk terminals, and only oils and pipe serving the west coast.
- The consolidated company will have a market cap of $140B, even though the stock doesn't reflect that yet.
- Most importantly – the payout and returns to shareholders. The expected payouts are $2.00 (2015), $2.20 (2016), $2.42 (2017), $2.66 (2018), $2.93 (2019) and $3.22 (2020). If KMI can keep its promise (and it has, in the past) and raise/beat those dividends in the future – that amounts to a salivating income play to investors.
The detailed presentation from Kinder Morgan provides more insight on the future. Click here to access.
Investing in KMI faces the following risks
- There have been rumors circulating that the consolidation of the businesses could face litigation from LP shareholders as they are forced to sell their shares and incur taxes. Dividend Growth Investor shared his thoughts recently about the huge tax bills KMP/KMI will face due to the consolidation. Read his post here.
- KMI assumes $27B in debt that the other entities had taken on.
- KMI faces some regulatory roadblocks with the Trans Mountain pipeline in Canada, which could incur delays in the project.
- Any increase in interest rates will result in headwinds for stocks in the sector.
Full Disclosure: Long CVX, KMI. My full list of holdings is available here.