Kinder Morgan Energy Partners LP (KMP) has tumbled 20% from its February high as everything associated with the oil patch sold off. Adding to the pain, a 3.8 million share equity offering chopped up the share price today.
This thrashing represents an attractive entry point into this beaten-down stock for six reasons:
1. Previous stock offerings were followed by higher share prices. The 6.5 million share offering of May 2010 frightened many investors into a sensational 10% one-day drop. Shares moved 12% higher in a week and 20% higher in four months. A 6.7 million share offering in June 2011 cut share prices modestly; KMP rose 5% a week later.
2. KMP is now oversold, with an RSI (14-day) of 28.
3. Management expects $4.98 in 2012 distributions.
4. Kinder Morgan, Inc. (KMI) intends to offer KMP all of Tennessee Gas Pipeline and a portion of El Paso Natural Gas acquired from its El Paso takeover, accretive to KMP's distribution per unit after 2012.
5. The general partner has been known to relinquish a share of its distributions on a KMP shortfall. I don't know of any other partnership where management is that committed.
6. It has an extremely attractive tax-deferred 6.4% distribution.
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Disclosure: I am long KMP.