I understand the difference between the two. My question is in theory, shouldn't the share price of both be the same? In other words, if you don't care about the tax implications, wouldn't KMR be the better buy here?
It boils down to a matter of buyer preference, do they prefer a stock distribution, or a cash distribution? Each has it's advantages, but most holders of KMR/KMP prefer cash as shown by the daily volume of each.
In order to issue a tax free dividend in additional stock, a company can give you no other option but for a stock dividend, thus we have KMR. And we thus have two listed stock symbols for the same MLP, one paying a stock dividend & one paying a cash dividend.
Therefore, as price is dependent upon buyer demand; which is disired more by the investor, cash or additional shares? Also, I suspect most investors are not fully aware of the tax advantages of KMR, or when aware, the cash option may appeal to them all the more as the MLP stucture has it's own tax advantages.
Personally, I hold a large amount of KMR shares in a taxable brokerage account because I like the tax free accumulation of additional shares. So far when I sell KMR, I have been able to offset any capital gains with the selling of losers when pruning my stock portfolio, or when not selling I just let them accumulate.
Simply, it just boils down to a particular investors circumstances, needs, requirements, and overall preference: stock or cash.
Thanks. But since KMR has a lower stock price than KMP, does this mean it has a higher yield?
I understand KMR pays dividends in stock and avoids tax complexity. I like that. I am just wondering if the stocks are at par in terms of price and when one is cheaper than the other if that means a higher yield than the other.