Wednesday, February 15, 2012

Kinder Morgan Energy Ptrs (KMP) 2012 Review

Kinder Morgan Energy Partners (KPM) is the largest owner and operator of petroleum product pipelines in the US.

It owns 37,000 miles of pipelines and 180 terminals used in transporting gasoline, jet fuel, diesel fuel, natural gas liquids, coal and carbon dioxide. This Master Limited Partnership has grown profits, cash flow (the basis for dividend payments) and dividends at a 3-12% rate over the past 10 years earning approximately 20% return on partnership capital. KMP suffered an earnings decline in 2009 but has rebounded. Future growth will come from:

(1) its focus on fee based and diversified businesses that allow the company to spread its risks and provide stable and steadily growing earnings stream,

(2) expansion into the Haynesville and Eagle Ford fields as well as the carbon dioxide business which has substantial upside potential,

(3) KMP’s continued aggressive investment in new organic projects that will enhance the company’s long term growth prospects,

(4) an active acquisition program which in 2010 included seven terminals and 50% of Petrohawk Energy Corporation.


(1) it is vulnerable to the volatility in crude oil and natural gas prices,

(2) it huge capital expenditure budget could impact the growth of distributions.

KMP is rated B+ by Value Line, carries a 58% debt to equity ratio, is expected to increase its dividend between 6-7% annually in the future which when combined with a 6.4% dividend yield, offers an attractive total return

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio * # Increases Since 2002
KMP 6.4% 6% 100% 10
IND 6.5 6 114 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
KMP 58% 22% 3 19% B+
IND 109 17 NA 7 NA

*this ratio is the dividend to cash flow


Note: KMP stock made great progress off its March 2009 low, quickly surpassing the down trend off its May 2008 high (red line) and the November 2008 trading high (green line). Long term the stock is in an up trend (straight blue lines). It is also trying very hard to stay above the lower boundary of an intermediate term up trend (purple lines). The wiggly blue line is on balance volume. The High Yield Portfolio owns a 2/3rds position in KMP, having recently made trading sales at $86-88. The upper boundary of its Buy Value Range is $75; the lower boundary of its Sell Half Range is $109.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.