Adding Kinder Morgan to our Best Dividend Growth Stock List
We are adding Kinder Morgan (KMI) to our Best Dividend Growth Stock list following the announcement of a plan to consolidate Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR), and El Paso Pipeline Partners (EPB) into a single corporation. The consolidation announcement on Monday (Aug 11) sent shares of (KMI) rocketing up 9% from $36.12 to $39.37 per share. KMI has been on the bubble just outside of making our stock list due to low growth rates. However, the consolidation of these four companies removes the burden of incentive distributions, which weighed on distribution growth to limited partners at KMP, and sets up a structure that analysis believe will support a 10% annual dividend growth at KMI.
Historical statistics listed on Dividend Geek will be based on the larger KMP company, which raised its dividend payment for the past 18 consecutive years, once the new consolidated company is in place over time those numbers will reflect the new C Corp company and not the MLP structure.
Strong (Wide) Economic Moat
Another key factor why we are adding Kinder Morgan to our best DGI stock list is due to competitive advantages that give it a strong economic moat. Here are some of the competitive advantages of the new organization:
- KMI’s natural gas pipeline portfolio provides transportation from most of the country’s gas sources, probably their #1 asset
- Their energy infrastructure assets would be extremely difficult to replicate giving KMI a near-monopoly status on pipeline operators.
- Both their natural gas and refined products pipelines consistently generate returns above their cost of capital
- The majority of their new investments are deployed in projects under long-term fixed contracts.
Valuation Status
KMI is currently trading at fair value. I would prefer an entry point of at lease 10% below fair value around $36 possibly after the excitement of the new organization wears off and or the market in general pulls backs.
To see how KMI stacks up against our other best dividend growth stocks in the energy sector just sign into Dividend Geek and go to the ‘Check for Undervalued Stocks’ page under the My Portfolio tab.
Filed in: Dividend Growth Investing
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Hello Geek,
Haven’t been to your site in many months and I saw your story on Kinder Morgan KMI.
I want to invest in KMI for my dividend growth investments. My question is will the new configuration of KMI be an MLP or just a regular stock?
Best Regards, Tim
Hi Tim!
My understanding is that they are ditching the MLP structure. Which for DGI is good news. KMI announced plans to raise their dividend 16% in 2015 and 10% for several years after! Of course the “proof is in the pudding.” But I haven’t seen any reason why the would not be able to meet their statement.
The end of this article (link below) talks more about it structure change, although the whole article is informative about the new KMI and worth reading.
Here is a shortened link that will take you to the article:
http://bit.ly/1HKzOOU
Happy new year!
Blaine
Tim,
Looking at the 1 year chart for KMI shows some support at $38 a share. That might be a possible entry point to initiate a position. Fair value is currently $40/share so it’s not a deep discount but that would be below fair value and high quality usually costs more.
All the best!
Blaine
Thanks Blaine for your timely response. I agree its best for us DGI’s that its not an MLP.
Especially when Richard Kinder comes out and states what their planning on for dividend increases thru 2020.
Another energy company(natural gas lines/not MLP) Williams Company(WMB/5% divi/11 years increases) I read on their website they are planning a 32% dividend increase in 2015 and 15% thereafter thru 2020. Wow, you know these two companies are committed to divi growth.
Thanks for what you do!! Tim
Having read this I thought it was very informative. I appreciate you
taking the time and energy to put this informative article together.
I once again find myself spending a significant amount of time both reading and posting comments.
But so what, it was still worthwhile!