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Kinder Morgan Management LLC Message Board

  • grleader grleader Jul 31, 2012 9:30 PM Flag

    KMR price should be 1.5% less than KMP

    When the price of the KMR shares is computed for payment of the (roughly) 1.5% quarterly stock dividend, the pre-ex-div-date average price is used. But the stock dividend is paid after the ex-div date, so that the stock has fallen an average of 1.5% (the amount of the dividend). Therefore, KMR's price should be roughly 1.5% less than KMP.

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    • As you can see Aug 7th announcement of more shares lead the price down $2.50. Every 3 months more shares are passed out to KMR, and not to KMP, many to retired people who sell them during the year. Also KMP are held by older people who will not sell because of income tax recapture not found when selling KMR. KMP often goes into an estates and sales may come later. This causes KMR to be locked up 10 or 20 years.

      • 1 Reply to ZLENNYY2
      • <<Every 3 months more shares are passed out to KMR>>

        and this has a similar effect on the price of KMR as the ex-dividend effect on KMP: both go down by about the amount of the dividend on the open and usually continue down for days or weeks.

        The effect is usually not as pronounced on KMR since I think most brokerage firms do not lower the bid on GTC KMR orders but they do on GTC KMP orders.

    • Let me run through a better analysis here -- there are more gotchas in this analysis than most people can figure out.

      KMP $80.44, $1.23 distribution
      KMR $73.78, ~$1.23 distribution in stock

      1000 shares KMP $80,440 $1,230 cash distribution

      $80,440 / $73.78 = 1,090.2683 KMR shares, ~$1,341.03 distribution.

      $1,230 cash from KMP or ~1,341.03 shares of KMR. Which would you prefer?

      But, your conclusion is closer to correct than the market price. You think KMR should trade at a 1.5% discount to KMP. The market is putting that discount at 8.33% or $6.77. I think KMR should trade at a premium to KMP of about 1.5%.

      My action item? Invest in KMR, but trade KMP. My KMP trade paid for my iPhone 4s and two years of service. I'm probably going to trade in and out of KMR for my iPhone 5, 2 years of service and early termination fee.

    • Why would KMR drop so much more than KMP. KMR is down over $2 today while KMP is down only $0.33

      • 1 Reply to earlyoutpress
      • Because KMR is increasing its number of shares by about 10%.That dilutes for the short term the per share value, but it brings in new money and means growth in the overall company. After all, increasing the number of shares in KMR is the way the LLC is set up for tax purposes. We have a down day but long term value will be created. Also notice the simultaneous announcement of the expansion of KMP by moving 50% of El Paso Partners into KMP. All of this is the growth story. Value will come. By the way, notice how this is the way we grow the number of shares these days. It used to be by stock splits and then investors would buy up the shares because they perceived the company's value was growing.

    • One dimensional analysis.

      I think, and have my investments managed that way, that KMR should trade at a premium to KMP:

      1) I can time when I sell the KMR dividend shares to optimize my taxes.
      2) I do not have to deal with K-1 forms.
      3) The distribution reinvestment of KMP probably causes a slight up tick in KMP around that time.
      4) I can pre-sell the KMR shares I'm receiving as the distribution instead of cash on ex-dividend EVE to lock in the higher pre-ex-dividend price.

 
KMR
97.72+1.17(+1.21%)Aug 29 4:02 PMEDT

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