OK, demise may be too strong a word, but is it truly wrong to want Kinder Morgan's stock price to sink towards $10 a share? As a long term buy and hold investor, I think not. For income investors, especially those that bought at much higher prices, I can only imagine the names they may want to call me right about now.
So over the last 3 days, Kinder Morgan's stock price has been tanking roughly -6 to -10% daily.
As of the writing of this blog, the price ended the trading day at $16.82. It looks like the price will continue dropping until the price of oil or Kinder's management convinces investors otherwise.
Now barring geo-political action or OPEC/non-OPEC capitulation, I'm not sure oil prices will be able to get back to the high-$40's. Right now oil is currently at $40 WTI. OPEC has stated they will be keeping production steady to slightly elevated which means everyone from producers to frackers to tankers (i.e. anyone on the upstream side) is going to stay in a world of hurt. This is obvious from a share price perspective. For example, some of the stocks I own such as RDS.B, EMES, SDRL, XOM and KMI are all starting to heads toward and in some cases take out their 52 week lows.
With respect to calming investors, that may take some serious actions on Kinder's part. Today they made an announcement about their distributable cash flow (DCF). After reading the announcement, it left me with more questions than answers. The most important part says,
"[Kinder] indicated an expected 2016 growth range of 6 to 10 percent over its 2015 target dividend of $2.00 per share. KMI has now completed its 2016 budget process and expects to generate 2016 distributable cash flow of slightly over $5 billion, which would be sufficient to support dividend growth in the range discussed in the third quarter call. Alternatively, this cash flow can be used to fund some or all of KMIs equity needs for 2016. KMIs board will be reviewing the dividend policy and financing plans in the coming days and the company will announce that policy and plan when finalized. KMI will construct its 2016 plan to maintain an investment grade rating with all three agencies. Further KMI does not plan to issue equity at current prices."
When I first read the announcement, it sounded like a puff piece to soothe investor nerves, but as many commentors in other KMI articles have pointed out, Kinder's plans may cause some serious investor hurt.
The keyword in bold, "alternatively," is very important and should be understood and taken seriously. For income investors, the alternative to supporting the dividend is to not support it. Now to be fair, there is a lot that could be done to the dividend. Kinder could freeze, cut or even suspend the dividend and use the DCF to pay down debt or fund other opportunities (per the announcement). Again, I do believe this point should be repeated and understood. If Kinder decides not to support the dividend, then we come back to my original question. Is it wrong to cheer for Kinder's [stock price] demise? So why am I using the word demise? Because I think any tinkering with the dividend will cause all remaining weak hands to fold and this will push the stock's price into the low teens-high single digits.
As I mentioned earlier, I am a buy and hold investor. Today I initiated a position at $18.50 in KMI. I know I jumped the gun and paid too much. As I was setting up my limit order, my gut told me to set the price much lower, but KMI had been dropping by ~6% each of the two previous days. I had convinced myself that most of the selling was done and all the buyers would swoop in to take up the slack. That definitely did not happen and I won't dwell on or gripe about the price I bought at because under any other circumstance, KMI at this price is a great buy (IMHO). It sucks being underwater right off the bat, but Kinder is still Kinder and as oil/gas recovers, so too will they.
Now that I have an initial position, I would like to buy a bigger swath and greatly reduce my cost basis. In additon, a much lower stock price allows me to buy more shares. More shares allow me to generate more cash in dividends assuming KMI has one come January.
I would be remiss if I did not ask the question what I would do if Kinder suspends their dividend. Quite honestly, nothing. I would buy more shares. I'd say the same if KMI froze or cut the existing dividend. In fact, I am secretly hoping KMI does exactly that. Cut or suspend the dividend and use that money to pay down debt and help fund the acquisition of NGPL. And once the dividend has been cut or suspended, let the stock price nosedive towards $10 per share. There are plenty of buyers at that price; myself included.
So bring on the demise! I only have 3.7% of my position and buying the remaining 96% at $10 per share is way better than buying at $20!