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Kinder Morgan Management, LLC Message Board

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  • abter1 abter1 Sep 10, 2009 7:05 PM Flag

    no Aug divid?

    This most recent dividend & distribution payment gives an interesting perspective.

    Fact: KMP paid $1.05, and KMR paid 0.022146 shares/share owned.
    If your broker was efficient in processing paperwork, you got your KMR dividend share on the payment date (8/14). If you then sold your 0.022146 shares at the closing KMR price on 8/14, you got $1.0244. [Selling at the close on any the next 5 days could have gotten you anywhere from $1.018 to $1.029...not a huge swing.]

    So KMP owners put more $$ into their pocket per unit owned then KMR owners did (per share owned). No surprise here.

    But that's not the whole story...KMR sells for less than KMP. Lets look at what happened to $10,000 invested in KMP and another $10k in KMR on 7/28/09 (last day to purchase get the dividend or distribution).
    $10k on 7/28 would have bought 185.185 units of KMP, or 209.03 shares of KMR.
    On the payment date (8/14), the KMP investor would get $194.44 in cash, and the KMR owner could have sold their new shares for $214.14. So the KMR owner has more cash (~$20)in their pocket.

    The more complicated thing is that both KMP and KMR went down between 7/28 and 8/14, and they each went down by more than the amount of the dist. or div. KMP was down $1.25 from 7/28 (a 2.31% loss), and KMR was down $1.58 (a 3.3% loss).

    So here is where the 2 $10k investors stood on 8/14:

    KMP owner had $9,769 in units + $194 in cash = $9,963 total
    KMR owner had $9,670 in shares + $214 in cash = $9,884 total

    On net then, the KMP owner was ahead by $79.

    As I said, this is all just looking at one payment cycle, and just looking at it from 7/28 to 8/14.

    What about over the longer term? Longer meaning ~ 5 quarters (I will calculate since 6/30/08 to 9/9/09) Remember though: this was a weird year. Not only for the market as a whole, but for the KMP - KMR relationship especially. On 6/30/2008 KMR was selling at a discount of 3.3% to KMP. Today KMR is 12.5% lower than KMP. That is a big drop, that a higher yield can't make up.

    Say our 2 investors bought $10k of each on 6/30/2008. The KMP investor kept the cash they got, and the KMR investor immediately sold the shares when they got them, and kept the cash. How have they done up to today?

    On 6/30/08 $10k would have bought 179.43 units of KMP, or 185.7 shares of KMR.
    Since then the KMP investor has received $925.89 in cash distributions. Our get-and-sell KMR investor has received $943.82 from selling. So the higher yield of KMR has put more cash ($18 more)in his pocket.

    But the steep increase in the KMR discount has hurt the KMR investor badly. On 6/30/08 KMR was selling for a 3.3% it is at 12.5%. The original KMP investment is now worth $9,537, down 4.6%. The original KMR investment is now worth $8,635, down 13.6%. As I said, the increasing discount has hurt! Add back in the cash they got, and the KMP investment has a total worth of $10,463, and the KMR investment has a total worth of $9,579.

    Putting a little perspective on this: the S&P500 is down 18.4% since 6/30/08, so either KM* investment has beaten the market by a good bit. But +4.6% total (cash + units) for KMP, and -4.3% for KMR over that period is still a pretty big difference.

    Of course if the KMR discount drops below where it is today the 2008 $10k investment picture will change. But I am starting to believe somehow the "new normal" KMR discount may be bigger than the "old normal". The discount would have to drop all the way to about 4% before the 2008 KMR investor catches up to the 2008 KMP investor. I doubt if we will see a new normal of anywhere near 4% discount.

    All this is merely backward gazing. Our future mileage may vary (to say the least!) I apologize for "thinking out loud" with everybody here as I mulled this over.

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