Before you consider a long or short position on KMR or any other MLP, I suggest you go to the following site - http://www.naptp.org (this site will provide information on the structure of partnerships like KMR/KMP. Specifically refer to PTP 101 section and "primers". This information may help.
Generally, an interest in KMR is a Limited Partner interest, as opposed to a shareholder interest in a corporation. A shareholder interest is pure equity, while a limited patner in KMR is a Unit Holder with limited rights. The General Partner owns the "pure equity", while the limited partner Unit Holders own a type of hybrid security (partially debt and partially equity - perhaps like a "participating preferred"). Limited partners are paid in accordance with the partnership agreement from Distributable Cash Flow.
From the General Partner point of view, payments to KMR Unit Holders are similar to debt payments since Unit Holders are paid first, and the General Partner (Knight) is paid after payments to Unit Holders.
in short: it can not pay out more than it makes in the long run. otherwise eventually it will have returned all your capital along with its declining income. generally its not a good sign when payouts exceed income. one or two quarters, payouts may exceed income in order to sustain stock value. payment in kind with additional stock also is a red flag. the tax issue just confuses things and is generally irrelevant. just like GE paying out more in dividends than it makes this past quarter. not a long run sustainable thing. something will give: either increase in income; decrease in stock value; or vacate the field. assuming this economic plunge will continue for a while, expect payouts to decrease, stock to decline, and payments in stock rather than $$ will occur.
The x-date is 2 business days before the date of record. With KMP's next date of record being on Thursday 4-30, the x-div date (or x-dist. date for an MLP) would be Tuesday 4-28.
To be clear: the x-div date is the first day a stock or unit is trading without the right to the dividend/distribution. So you must purchase 3 days before the date of record in order to be the owner of record on the date-of-record. So you must buy KMP or KMR on or before 4-27 to receive the dist/dividend.
And to be clear on which ten day average is used: the following is from the KMR prospectus:
"Each quarter we will calculate the fraction of a share to be distributed per outstanding share by dividing the quarterly cash distribution to be made by Kinder Morgan Energy Partners, L.P. on each common unit by the average market price of a share over the ten consecutive trading days preceding the date on which the shares begin to trade ex-dividend under the rules of the principal exchange on which they may be listed. "
A couple of points:
1 IRS does not allow FIFO on MLPs. You have an undivided interest in your investment. However, since KMR is an LLC and all gains are treateted as CG, I doubt that applies here and you should be ok.
2. Specific identification must be done and documented at time of sale, not after the fact. Fido makes this easy by letting you pick which shares you're selling when you place the order, most brokers do not.
3. Fractional shaes - Ameritrade does not let you keep fractional shares so every year I have 4 sales of KMR on my 1099. I just report 4 short term sales with basis and proceeds equal and therefore no gain. The IRS does match total sale proceeds from all 1099s received by you to what you report on Sched D, so its important that what you report on Sched D is at least what the 1099s show. Otherwise, you'll probably get one of those dreaded IRS letters. (I got a thick one last week but it was only forms for estimated payments for this year)
I have owned KMP for many years, but in Dec 08 sold KMP and purchased KMR. My first sale of KMR was Feb 3, 2009.
So, I really do not have any history; but my plans are as follows:
(1) Cost basis... as you mentioned... allocate origial cost over all shares owned after each "split/distribution".
(2) I plan to use specific identification (similar to FIFO - First In First Out). Gain/Loss will be short term in 2009, and long term thereafter (of course, there is risk the IRS could challenge this accounting, but I believe worst outcome is pro-rata short term/long term).
Followup---Vanguard accumulates the fractional shares in .001 of a unit. When you have enough fractions to represent a share you call the brokerage and choose either to sell or convert fractions(Now a full unit) to a full share.
The ex div date was 1/28/09, but the record date was 1/30/09. So, investors (like me) who hold KMR for the additional yield, but sell the dividend shares each quarter, may sell such dividend shares beginning 2/2/09.
I sold mine today (2/3/09) at $42.26, slightly below the share distribution/dividend price of $42.72, but significantly above the KMP yield.
The selling will propably lessen in the next day or so, and more normal trading will resume.