Recent Buy – Inter Pipeline Ltd

Inter Pipeline Ltd

As the market continues its relentless climb, I have been weary and finding it harder to find some good investment opportunities. The purchases have all but dried up in my portfolio. However, I was finally able to pull the trigger last week when I saw a pretty good opportunity in the energy sector. Midstream/pipelines were one of the best performers in 2016 and the stock picking competition resulted in Top 3 to be pipelines. However, they seemed to have pulled back a bit this year, and I decided to add to my existing position.

I added 100 shares in Inter Pipeline Ltd (IPL.TO) @ C$26.00. The company pays C$1.62 in dividends annually and currently yields 6.15%.

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My Thoughts on Kinder Morgan

Kinder Morgan has been a core holding for a lot of dividend growth investors and I have received a lot of questions from readers about my thoughts on the company and the future prospects.

Kinder Morgan has had a spectacular fall from its peak from $44.71/share in Apr 2015 to $15.82 today (Nov 07 2015). In a way, this shouldn’t have come as a shock – Kinder Morgan has been on a debt binge (just like a lot of other companies out there – so look out for similar outcomes in other companies!) and is now close to $43B in long term debt fueling its growth and investments. The recent ratings downgrade from Moody’s with a negative outlook was a wakeup call for a lot of investors and traders have jumped in to short the stock.

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Recent Buy – Inter Pipeline Ltd

Inter Pipeline Ltd

A new quarter and I am already putting some of my cash to work. Whenever I make a purchase, I like to share my buys to document and illustrate how I am building my income stream over the course of months/years. My main goal is simply to keep investing at regular intervals and build my passive income over the course of time. In a sort of ways, I am building my own pension, hoping to get to a point where I can simply live off my dividends without touching my principal investment.

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Recent Buy – Kinder Morgan Inc (KMI)

I initiated a new position in Kinder Morgan Inc. (KMI). Kinder Morgan Inc owns and operates energy transportation and storage assets in US and Canada. KMI is the fourth largest energy company in N.America, owning an extensive network of pipelines for natural gas, crude oil and petroleum products. The company owns an interest in or operates approximately 75,000 miles of pipelines and 180 terminals.
Corporate Profile (from FinViz):
Kinder Morgan, Inc. owns and operates energy transportation and storage assets in the United States and Canada. The company operates in six segments: Natural Gas Pipelines, Products PipelinesKMP, CO2KMP, TerminalsKMP, Kinder Morgan CanadaKMP, and Other. The Natural Gas Pipelines segment consists of approximately 62,000 miles of natural gas transmission pipelines and gathering lines, as well as natural gas storage, treating, and processing facilities. The Products PipelinesKMP segment consists of approximately 8,600 miles of refined petroleum products pipelines that deliver gasoline, diesel fuel, jet fuel, and natural gas liquids to various markets; and approximately 62 associated product terminals and petroleum pipeline transmix processing facilities. The CO2KMP segment produces, markets, and transports carbon dioxide to oil fields through approximately 1,500 miles of pipelines; owns interests in and operates seven oil fields in Texas; and owns and operates a 450-mile crude oil pipeline system in Texas. The TerminalsKMP segment owns and operates approximately 113 liquids and bulk terminal facilities; and approximately 35 transloading and materials handling facilities that transload, store, and deliver various bulk, petroleum, petrochemical, and other liquid products. The Kinder Morgan CanadaKMP segment transports crude oil and refined petroleum products through approximately 2,500 miles of pipelines from Alberta to marketing terminals and refineries in British Columbia in Canada, Washington state, and the Rocky mountains and central regions of the United States; and 5 associated product terminal facilities. The Other segment includes various physical natural gas contracts with power plants. 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 Inc has been on my radar for the past few months and I finally decided that it was a good time to initiate a position.
  • Kinder Morgan has had a bit of a see-saw year in 2013. The stock took a bit of a beating in December 2013 after this news release from the company – where the company stated that it was seeing some loss of income in its Kinder Morgan Energy Partners L.P (NYSE: KMP) and El Paso Pipeline Partners L.P. (NYSE: EPB) division. However, the business model is robust and KMI reported an expected dividend growth rate of 10% for 2014, right in line with their previous growth rate.
  • Recently it was announced that Kinder Morgan acquired an oil tanker business, American Petroleum Tankers and State Class Tankers for just under $1B (source).
  • I only own one pipeline stock in my portfolio – Inter Pipeline Ltd (TSE: IPL) and was debating whether to add another equity in this industry. In an endorsement for the future of the industry, Warren Buffett and Berkshire Hathaway announced that the big play for 2014 is Pipelines (source).
All the reasons above considered, I decided that KMI was a great stock and attractively valued at current levels and decided to initiate a position.
Risks:
Pipeline stocks, Kinder Morgan Inc included, are sensitive to interest rate rises. Most investors tend to move their money into sectors such as REITs, pipelines and utilities in low-rate environment. When the interest rates rise, these sectors tend to suffer as the money finally leaves for the safety of bonds.
A summary of the stock:
  • Symbol: NYSE: KMI
  • Quote: $36.19
  • 52-week Range: $32.30 – $41.49
  • Debt/Equity: 2.71
  • Yield: 4.53%
  • 5-yr Dividend Growth Rate: 10%
What are your thoughts on KMI?My full list of holdings can be found here.