Recent Buy – Kinder Morgan Inc (KMI)

I added to my position in Kinder Morgan Inc (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).

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 (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)
Kinder Morgan, Inc. operates as a midstream and energy company in North America. It operates through Natural Gas Pipelines, CO2—KMP, Products Pipelines—KMP, Terminals—KMP, Kinder Morgan Canada—KMP, 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 oilsands pipe serving the west coast.
  • The consolidated company will have a market cap of $140B, even though the stock doesnt 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.

Risks
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.

13 thoughts on “Recent Buy – Kinder Morgan Inc (KMI)

    • Cant go wrong with KMI, even at these levels. I love how clear the management is about the future dividend raises – giving the rest of the investors a clear view of whats to come.

      R2R

  1. Great buy, KMI is having a nice run with the recent announcement. Really glad that I bought some back when it was near 52 week low. Great yield and a solid company.

    • Good call on buying at the 52 week lows, Tawcan. I wish I had picked some up at that time. I was tempted, but my energy sector was already pretty high, so I passed it to invest elsewhere – lesson learned.
      Im still glad I picked some up last week after the initial reaction died and there was some weakness in the stock.

      Best wishes
      R2R

  2. R2R,

    Great buy here. I think KMI still has some value left, even after the big pop.

    I passed on it when it was in the low $30s as it was already a fairly large position for me. I kind of regret it now after the big jump, but it was the prudent move when I made the decision.

    Enjoy those dividends being pipelined into your account. 🙂

    Best regards.

    • Thanks Jason.
      I wish I had picked them up too. I had a look at it when it was around $32 but my energy sector was too high and I passed on it and now I regret it – lesson learned!
      I agree that there is still some value here at these levels after the pop. I will be looking to buy more in the future when I see some weakness.

      Thanks for stopping by
      R2R

  3. Solid buy. KMI is a great company and will continue to be a great company after the consolidation. Not a huge fan of MLP’s, but they can only get so big until the structure becomes counter productive. Will look for future updates as to how it’s doing. Thanks for sharing!

    Thanks, Sam

    • I hear you on the MLPs Sam. I think Richard Kinder figured that and timed the conversion very well – considering that the investment was there and all the pipelines were in the ground – so now KMI can be productive from Day 1 after consolidation.
      Thanks for stopping by. Your blog is new to me. I will be sure to check it out and follow along your journey.

      Best wishes
      R2R

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