Friday, March 21, 2014

Recent Buy

On Wednesday of this week I made another purchase.  It was actually the first purchase I'd made in almost a month which is a bit longer than I prefer my purchases to be.  Shares of Kinder Morgan, Inc. (KMI) have been under fire over the last month or so after a scathing article by Barron's questioning Kinder Morgan's calculation of distributable cash flow, the life blood of the dividend.  Essentially, the question is how much of Kinder Morgan's capital expenditures are for maintenance versus expansion.

The attacks by the Hedgeye energy analyst seem to be largely unfounded and given the criticism and struggling share price, CEO Richard Kinder responded to the claims and even purchased 200k more share of KMI.  You can read Kinder Morgan's full response to the claims here.  I love finding companies where the CEO is heavily invested in the company's performance.  Notably, CEO Richard Kinder's salary is a minuscule $1 per year which is much less than the average CEO compensation package.  Seeing as how he owns over 240 million shares of KMI and has the majority of his net worth invested in the partnership, I imagine he'll do everything in his power to run the companies as responsibly as possible to insure that the distributions/dividends continue to increase each and every year.

On Wednesday I purchase 45 more shares of the general partner Kinder Morgan, Inc. (KMI) for $31.05 per share.  My cost basis for this lot comes to $31.23 after commission.  Based on the current quarterly dividend of $0.41 per share this lot carries a YOC of 5.25% and will provide $73.80 in forward dividends.  A quick valuation of the company using the Gordon Growth Model gives a fair value price of $41.00 assuming a 6% dividend growth rate and a 10% discount rate, so there's a pretty large margin of safety at current prices.

This purchase brings my position to a total of 218 shares and it currently makes up about 5.5% of my portfolio.  With a per share cost basis of $31.23, this new lot was purchased at a 9.0% discount to my previous cost basis which let me average down my cost basis.  My cost basis decreased from $34.31 to $33.68 or 1.85%.

My 12-month forward dividends finally crossed over the $4,000 mark and are at $4,046.69.  I've still got a long way to go to reach my goal of $5,000 by the end of the year but it's definitely still in play.

I've updated my Portfolio page to reflect this addition.

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28 comments:

  1. Great buy. I too plan to get more of KMI here.

    ReplyDelete
    Replies
    1. PIP,

      This is a nice buy there. I am too much overweight the Kinder Morgan entities, otherwise I would have been adding to my position left and right.

      And thanks for linking to my article. I am much more confident when a smart man like Rich Kinder is holding on to this company.

      Have a nice weekend!

      DGI

      Delete
    2. FF Dividend,

      I probably won't be adding any more for at least a few months due to it's weighting in my portfolio but for smaller purchases it's a great company to add to.

      Thanks for stopping by!

      Delete
    3. DGI,

      I hear ya on being overweight the KM companies. That's why it took me so long to add some but I think 5.5% isn't bad and might make one more small purchase of KMI.

      I completely agree on having management as a major shareholder being great for other shareholders. Especially since so much of his wealth tied to the performance of the companies he runs.

      Thanks for stopping by!

      Delete
  2. Good stuff, JC. I am tempted to add to KMI at these levels as well

    ReplyDelete
    Replies
    1. Roadmap,

      It's treated me well so far. Another thing I like about KMI is that they typically give smaller raises throughout the year instead of one increase each year. It allows for quicker compounding which is always welcomed in my book. If only all companies would do that.

      Thanks for stopping by!

      Delete
  3. Nice buy, I added more KMI and ESV this week.

    ReplyDelete
    Replies
    1. AAI,

      I need to look into ESV more. Especially if the offshore drilling in the Gulf really picks up like they're talking.

      Thanks for stopping by!

      Delete
  4. JC,
    Nice milestone passing $4000. I've been looking at KMI too and so far haven't pulled the trigger. Lots of DGIs piling in. Need to parse over some more data, and I have read the Barron's piece yet either. Required reading.
    -RBD

    ReplyDelete
    Replies
    1. RBD,

      I'd definitely read the Hedgeye piece as well as Kinder Morgan's response. It's at a great price here and I liked getting to add some more shares and lower my cost basis.

      If only there was one more zero after that 4 in my forward dividends!

      Thanks for stopping by!

      Delete
  5. JC,

    Congrats on passing $4k in forward dividend income. That's awesome. You're kicking some serious butt.

    Great buy on KMI. I went back and forth on it, but ultimately decided not to buy more here. It's already a pretty large holding for me, and while I'm confident about the long-term prospects, I didn't want to expose myself to more risk than I was willing to take on. I have no worries about Kinder Morgan here. The talk from Hedgeye is just noise. People are concerned about CapEx even as Kinder Morgan continues to have a great safety record. It's comical.

    I may invest more in KMI in the coming months, however. We'll see.

    Best wishes!

    ReplyDelete
    Replies
    1. DM,

      It feels good to finally pass it as I'd been close for a while.

      It's around 5.5% of my portfolio so I'll be holding off for now but it was at a good price to average down and increase the overall yield of my portfolio without getting too overweight one company. The Hedgeye concerns seemed weird but I love the response from KMI.

      Thanks for stopping by!

      Delete
  6. Great buy! I also picked up shares for our family dividend growth portfolio.

    ReplyDelete
    Replies
    1. AFFJ,

      Thanks and glad to be a co-owner of a great business. I think KMI is priced very cheaply right now and given the continued drilling for O&NG in the US, KMI should be primed to capitalize on moving the products. I'll stop by your blog this week and check it out.

      Thanks for stopping by!

      Delete
  7. Nice buy JC. I was tempted to buy myself, but have held off so far. Great job on your milestone too!
    -Bryan

    ReplyDelete
    Replies
    1. Bryan,

      I was wanting to buy something and KMI was a good fit with it's current yield and DG. Plus I got to average down my cost basis so that made it even better. Finding good value sure is difficult right now and I could really go for another 5% pullback like at the end of January/beginning of February. What a difference a month or two makes.

      Thanks for stopping by!

      Delete
  8. Nice! Passed the $4k mark and added some shares of a solid company that should do very well over the next 5-10 years as the natural gas boom really continues to expand here in the states. Love Kinder's compensation plan. Why bother with salary when you can collect it all as dividends.

    ReplyDelete
    Replies
    1. w2r,

      I'm pretty bullish on KMI and the domestic O&G industry in general. The preferential tax treatment sure is nice. Now I need to work on getting up to $5k!

      Thanks for stopping by!

      Delete
  9. I've been following KMI and as soon as I get some cash I plan to pick some up.

    ReplyDelete
    Replies
    1. Charles,

      I think you'll be very happy purchasing shares around current prices. 5%+ yield and 7-10% growth rates? What's not to like? And having management on your side is a huge bonus as well.

      Thanks for stopping by!

      Delete
  10. It's a good sign to see leadership double down in the face of criticism. When all parties have skin in the game, it lends confidence.

    ReplyDelete
    Replies
    1. Done by Forty,

      Richard Kinder is one of the best CEOs around and having so much of his own personal wealth tied to the performance of the company is great for shareholders. You can bet he's going to do everything in his power to make sure the company continues to grow and pay out dividends. Even better is that it's not like he owns the shares from huge incentive stock options. It's from open market stock purchases.

      Thanks for stopping by!

      Delete
  11. Good to see the CEO putting more money into shares. I own KMI but haven't added to my position recently. I think I may do so if the stock continues to struggle in the coming weeks.

    ReplyDelete
    Replies
    1. First Million,

      It's always good to have management on your side literally and figuratively. He's got so much wealth tied up in the KM family of companies so I imagine things will be just fine for shareholders. If it didn't make up 5.5% of my portfolio I'd have added much more. This price was just too compelling for me to not make some kind of add.

      Thanks for stopping by!

      Delete
  12. Any short version of why you picked KMI rather than KMR, KMP, or EPB? I understand the basics (such as KMP = KMR except KMR gives payout via micro stock splits rather than cash; and that KMI is the management company that is the general partner over KMP and EPD.)

    I'm long KMP in a taxed account; just picked up the initial position the same day you did based on the drop. I'm starting to second guess my choice of KMP over KMR and KMI. I plan to hold "forever" and don't want/need the income for a long time. I'm seeking compounding "dividend" growth. No restrictions on MLP v. stock in my taxed account; also no worries about a K1.

    ReplyDelete
    Replies
    1. I'll add for those that are seeking a "basic" understanding, here is a good start: http://www.fool.com/investing/general/2012/12/29/kinder-morgan-for-beginners.aspx

      Delete
    2. Dave S,

      I prefer KIM for the simplicity. Its like owning and other corporation like PG or JNJ for tax purposes. Plus KMI should have higher DG due to the IDR's and being the GP of the partnership. I think it was Dividendgrowthinvestor.com had a recent post on his blog highlighting the differences. Since I've got time on my side I'll take growth over current yield, although the yield for KMI is really good right now.

      Thanks for stopping by!

      Delete