I've been a KMI shareholder since around $32 and have been watching the warrants on and off for a year. With this transaction I liquidated a huge percentage of my portfolio (other than KMI) and bought warrants hand over fist.
My cost basis is $4.02 on 15,000 warrants.
I'm incredibly heavily concentrated in KMI and KMI-WT, and I understand the risks. I love the asymmetric risk:reward quality of these warrants. Max loss is 100%, and I could envision a scenario where the stock trades to $60 before May 2017 which would be 400% upside.
More importantly, I don't see the stock trading below $44 in May 2017 without a huge market dislocation. The shares are projected to pay at least 2.42 a share, and even a 5% yield would place the market price of KMI at $48.40 when the warrants expire. That would be over 100% upside on the warrants.
Breakeven on the warrants would be a 5.5% yield on the 2.42 dividend estimate ($44). I think 5.5% is too cheap for a company with stable revenues increasing its dividend at 10% a year.
Finally, Kinder has a history of making conservative predictions. I predict that KMI pays more than 2.42 in dividends in 2017, and that the dividend yield is below 4.5%. I feel like this is the best risk to reward I've seen in an investment for quite a while, and I've invested accordingly.
I may even sell my KMI position and roll it into the warrants, but for now I'm holding both.
Those are selling for $4.05/4.08, expiration 5/2017. KMI Jan 16 $40 calls are $2.42/2.53. I like the lower dollar play, even though it's shorter, as the leverage is much better. By 2016 you would think the "yips" will be out of this stock. Either one probably works, indeed, buy now or bite your fingers later.
be interesting to see what happen to the warrants in another year (or less) when publicly traded options are available with similar expiration date and the two are trading side-by-side, especially if Kinder is buying warrants but not the options.
If KMI delivers on the 10% annual div growth, the div will increase anywhere from 10-15% between the Jan 16 calls expiration and the 2017 warrants -- by itself, that could accrue an extra $6-$10 to the stock price and hence warrant value in that period. So it seems like the value proposition is, if you buy the 2016 calls now instead of the warrants, in Jan 16 how much will you need to pay for a May 2017 call with a $40 strike, vs the $1.60 cost now. Am I missing something?