Just when I thought KMP had reversed course, the company is issuing up to 4.1 million shares and the stock prices is off big time after hours. I feel that I have been cursed but this too will pass
When a company is a MLP they distribute basically all their free cash as distributions. How then are they supposed to acquire new assets without issuing more units and debt? There are lots of companies in the MLP arena better than Kinder as it is having some difficulty in dealing with the EP buyout. They also have a cap ex program in the $Billions. With some people thinking that people are going to stop using energy resources in a bad economy, MLP prices mostly flat thsi last year. Suggest you take a longer term look at MLPs for say 10 years and compare it to the S&P. VERY VERY different picture.
The bigger long term problem for KMP (IMO) is the estimated 7% annual distribution growth is based on distribution of virtually ALL dcf.... there is no room for comfort. While interest rates stay at these historic low levels all is well but when interest rates eventually go up it stands to reason KMP will have to alter its distribution growth policy while other MLPs that maintain a comfort zone between dcf and distributions can continue growth comfortably.
Can't help but think that this company is trying to stuff 10 lbs of crap into a 5 lb bag.
Stock Price one year ago = $80.20
Stock Price Today = $78.40
Distributions = $ 4.85
Total Return = $3.05
Total Return % = 3.8%
You can get better returns and less risk from preferred stock funds. Richard Kinder is pulling the wool over your eyes
The problem here is that people do not pay attention to current yield. KMP traded $90+ at the beginning of 2012 with a current yield of 5.35% -- this is way too low to hold onto an MLP that is mostly return of capital.
Fast forward to now and KMP at $79 with a $5.04 distribution is 6.37974% -- a much better current yield. KMP is also now in my buy range.
High yield for the last year for KMP was 6.61%. Low yield was 5.353%. Much closer to a decent current yield now and therefore a good buy. I'm actually looking to buy KMR instead.
The current Goldman Sachs price target for is $86 as of 9/30/2012. Buying here gives some nice price upside in addition to a close to annual high current yield.
BTW, I've sold some other high flying dividend stocks because their current yields are too low and their P/E ratios are just silly high.
I did the math. The dilution represents only $1 in terms of the KMP share price.
4.5 million share = $362 million in dilution.
(($362 million dilution / $29.3 billion market cap) * 80.5) = $0.99 cents per share. And the stock is down more than $2 after hours. I buy.