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Other MLPs to gain as cash may exit Kinder Morgan, Morgan Stanley says

  • Other MLPs should gain as several billion dollars likely will rotate out of Kinder Morgan (KMI, KMP) thanks to various investors who prefer to remain invested in MLPs, which could bring a big boost to the rest of the asset class this year, Morgan Stanley says.
  • The tally of funds impacted by Kinder Morgan's decision to roll up all its MLP assets into a single non-MLP corporate parent and investors’ reactions to the move theoretically could run as high as $62B, the firm says.
  • Likely key beneficiaries include large-cap and higher-yield MLPs, the two primary investment styles displaced in investors’ portfolios by the transaction, Stanley says; the larger the potential rotation, the wider the benefits likely to be experienced.
  • ETFs: AMLP, AMJ, MLPL, YMLP, MLPI, MLPA, ENY, MLPN, MLPG, EMLP, MLPS, MLPX, MLPY, MLPJ, AMU, YMLI, ATMP, ZMLP, MLPW, IMLP, ENFR, MLPC
Comments (33)
  • Voice from Chapel Hill
    , contributor
    Comments (82) | Send Message
     
    I agree - would like to see KMI back about 35 for a nice buying opportunity. Sold my KMI for this very reason several weeks ago as I think some investors would like to get 8 to 9% today instead of a promise of 8 or 9% years in the future.
    25 Aug 2014, 02:24 PM Reply Like
  • mydogmoe
    , contributor
    Comments (658) | Send Message
     
    I think it would have a neutral effect on KMI and possibly be a positive. What I see happening is some may take their cash from selling EPB, KMP or KMR especially if they are in a tax deferred account because they don't NEED anymore KMI stock and won't pay any taxes on the profit until drawn. Additional KMI stock may over allocate portfolios. I did exactly what the article implied. I sold EPB and bought more ETE and that has worked nicely. I may do the same with KMR but haven't yet..
    25 Aug 2014, 02:37 PM Reply Like
  • fredjohnson3
    , contributor
    Comments (47) | Send Message
     
    Nonsense.
    25 Aug 2014, 02:49 PM Reply Like
  • mydogmoe
    , contributor
    Comments (658) | Send Message
     
    I don't think it is nonsense at all. KMP, KMR and EPB have all lost value since the article was published. Many are taking profits now and paying no taxes in tax deferred accounts. This will not be the only deal like this. Other MLPs are advancing (such as ETE) as investors shift strategies. I will hold KMI in a taxable account but if KMR drops any further I will have a percentage stopped out...
    27 Aug 2014, 11:00 AM Reply Like
  • Longfei13
    , contributor
    Comments (13) | Send Message
     
    I am not selling my KMP just yet. Mr. Kinder has something else up his sleeve methinks. He seems to have a way to outfox the speculators every time.
    25 Aug 2014, 03:12 PM Reply Like
  • hhmcdon
    , contributor
    Comments (265) | Send Message
     
    Richard Kinder has an amazing record of success. In the KM database they have the ownership records and thus know who bought what, when, for how much and their present basis. I am confident KM has an algorithm to predict who is going to stay or leave and the effect on the stock of the new KMI. This link explains it better than I possibly could: http://bit.ly/17WfTyH My opinion is: "Those that can, do; those that can't analyze"
    25 Aug 2014, 04:05 PM Reply Like
  • Voice from Chapel Hill
    , contributor
    Comments (82) | Send Message
     
    Thanks hhm - a great link - never regret taking a profit - especially when a lot of change is taking place in a security - lots of great opportunities in the market - have enjoyed 50 years of investing in the market!
    25 Aug 2014, 05:21 PM Reply Like
  • FCARONE
    , contributor
    Comments (571) | Send Message
     
    Are you implying the Kinder may be influenced by investor ownership data in addition to other( external) influences? I never fully trusted Kinder! I think he's smart, but for himself and his insiders . If others benefit from his decisions, that good. But I don't think he's primarily driven by investor interests. He's and OPM and leverage guy and will play his situations and opportunities accordingly. Nothing wrong with that, but let's not think he's in it for the investor. We're just a resource to use and manipulate.
    25 Aug 2014, 05:36 PM Reply Like
  • hhmcdon
    , contributor
    Comments (265) | Send Message
     
    FCARONE: What you just wrote is upside-down. The new structure consolidating the KM family in KMI, eliminates conflicts of interest that became visible as KMP became so large. The MLP structure for KM had outlived it's usefulness. Only a fool is incapable of change when the situation changes. Rich Kinder is no fool ! Please read :"Who moved the cheese" Here: http://bit.ly/VOBXWs
    25 Aug 2014, 07:03 PM Reply Like
  • FCARONE
    , contributor
    Comments (571) | Send Message
     
    Upside down thinking is not realizing what is happening and why. The roll-up is in his interest, not yours! Your and my interests are incidental to him ! He structured the KMI entity, right from the start, to benefit from unconscionable revenue participation levels. The unit holders get ripped off of the yield they should have received for the money they invested ! He owned more KMI than any other of the entities. He is the real winner, not you. After tax gains are all that matter now. If you came out ok, that's great, many did not ! This is not the last you'll hear from Kinder. I believe he'll look to Canada and try to do a tax inversion transaction when the roll-up is completed. Enterprise may be on his radar. Who knows? Stay tuned to this smart wheeler -dealer as he continues to build his ever-growing empire! I would be interested in KMI if it paid a 6% or better yield. The post-roll-up yield is too low for me, even with the possibility of future increases. I'll buy at $35 or less, maybe using Put options if I can.
    26 Aug 2014, 10:10 AM Reply Like
  • mydogmoe
    , contributor
    Comments (658) | Send Message
     
    I think you make some good points. The inversion idea is clever. However I think a 5% dividend in an equity is a pretty good dividend. It is no longer an MLP and I expect the stock price to appreciate once the dust settles...
    27 Aug 2014, 04:10 PM Reply Like
  • tarheelboy
    , contributor
    Comments (219) | Send Message
     
    The speculation by these brokerages houses about kinder should be criminal.
    25 Aug 2014, 03:29 PM Reply Like
  • leviticus1935
    , contributor
    Comments (70) | Send Message
     
    The only benefit I can see is that it allows investors who, like myself, were "locked into" KMP, to now have a higher tax basis in KMI - paid for dearly by making extra tax payments in the merger. We are now able to sell our newly acquired KMI and buy anything we wish - MLPs or otherwise. Since I am personally still overweighted in MLPs, I will diversify into other groups.
    25 Aug 2014, 03:45 PM Reply Like
  • Sir Duke
    , contributor
    Comments (146) | Send Message
     
    Richard Kinder himself said:
    "This combined entity will be the largest energy infrastructure company in North America and the third largest energy company overall with an estimated enterprise value of approximately $140 billion."

     

    Where else can you find a low to medium risk 4% yield with 10% growth? People selling now are going to miss out on a new era of growth for the Kinder enterprise. Sure you might get lucky and get a lower entry point, but it might run up higher and then when do you get back in?
    25 Aug 2014, 04:40 PM Reply Like
  • HedgerMan
    , contributor
    Comments (25) | Send Message
     
    Look at Consolidated Edison (NYSE:ED) or Duke Energy (NYSE:DUK) or almost any bonafide utility company will get you over a 4% dividend
    25 Aug 2014, 05:34 PM Reply Like
  • Sir Duke
    , contributor
    Comments (146) | Send Message
     
    HedgerMan, looking for growth of dividend not just the 4% starting yield. The utility dividends you quoted barely outpace inflation. Do you see that changing anytime soon? And if so why? Kinder has a huge backlog $16b to grow the dividend. ED can barely raise the dividend and agreed to freeze New Yorkers’ gas and electricity delivery rates over the next several years.

     

    ED 3-yr div growth 1.5%
    DUK 3-yr div growth of 2.8%
    KMI 3-yr div growth of 73.2%

     

    run the numbers for yourself: http://bit.ly/sNgGC5
    25 Aug 2014, 05:56 PM Reply Like
  • HedgerMan
    , contributor
    Comments (25) | Send Message
     
    Sir Duke,
    DGR is only one parametric to measure performance. Don't forget that KMI virtually started it's dividend payments on Ap 28, 2011 at $.14 per share so it's growth rate would be rather high and misleading. Both ED and DUK have been pillars for seniors who need dividend income and are the mainstays of many elders portfolios. I'm not a believer of financial engineering which is what's going on with KMI and Richard Kinder which is why I've divested from all of my Kinder holdings from the past decade.
    The better metric for performance is total return and when you compare KMI to ED and DUK , you'll note that ED comes in at about 71% and DUK comes in about 88% while KMI, although fueled by KMP, comes in at 79%. Both ED and DUK have been paying dividends since the 70's and 80's respectively. There is one main difference and that is for an elderly person who really needs security, utilities who provide an entity that people must have, do a better job at providing this security that a pipeline company who is in the midst of financial reorganization and may even have to fend off a few class action suits.
    Do the analysis and you'll see that KMI will not get to KMP's dividend income level until sometime after 2017 and in the meantime KMI's profits should soar. What a great move for investors?
    28 Aug 2014, 03:00 PM Reply Like
  • Founder
    , contributor
    Comments (194) | Send Message
     
    HedgerMan

     

    I ran the numbers and this is what I came up with.

     

    1 KMP = 2.1931 KMI x $2 dividend x 10% growth rate = June 2018 for parity to KMP's current distribution.
    28 Aug 2014, 05:52 PM Reply Like
  • b3player
    , contributor
    Comments (361) | Send Message
     
    Hi Founder,

     

    Ok now run the numbers past 2018 for both the new KMI @10% yield growth and KMP @ 5% growth (I know we can't assume either growth rates but that is what was and is projected).

     

    In the long run the KMI looks better than the old KMP (not withstanding those who have a tax liability) IMO.
    28 Aug 2014, 07:18 PM Reply Like
  • HedgerMan
    , contributor
    Comments (25) | Send Message
     
    b3player,
    I ran my numbers and assuming that the KMI share price holds at it's current level which I doubt that it will, the KMI dividend yield will not exceed the current KMP yield of 6.8% until about 2019 assuming that the 10% dividend increase will still hold true. Unfortunately, the breakeven point is out until about 2021 where you start to exceed the performance of what KMP had been doing and this is holding KMP at it current dividend level without any increases like KMP has had over the past decade.
    I've owned KMP for well over a decade but the recent financial engineering forced me to divest and invest in other and better return vehicles than what I can expect from KMI in the next few years. I will be following KMI to see if it will become a worthwhile investment in the next few years.
    29 Aug 2014, 02:28 PM Reply Like
  • HedgerMan
    , contributor
    Comments (25) | Send Message
     
    Founder,
    You stated what was in the KMP press release which was public knowledge. My analysis shows that KMI won't get on parity with what KMP is doing right now until sometime around 2020.
    29 Aug 2014, 02:31 PM Reply Like
  • b3player
    , contributor
    Comments (361) | Send Message
     
    Thanks HedgerMan,

     

    You said. "I ran my numbers and assuming that the KMI share price holds at it's current level which I doubt that it will,....".

     

    So If KMI price does not "hold their numbers", then actually the dividend will increase as the price declines, right?

     

    I would be interested in why you think the KMI share price will fall. I have read others who speculated just the opposite.

     

    By the way, for those DG investors who follow the "Chowder" rules, not withstanding that KMI is currently a BB rated company and has not thrown off dividends for 5 years or more, the current Chowder score would be approximately 14 (4. 3% dividend + >10% dividend growth for the this year and the next 4 years). For the new KMI (now will be a "C" corporation) this beats the Chowder criterion by more than 2%. That is why I stated previously that I think that DGI's will likely find the new KMI attractive.

     

    HedgerMan, I know you tossed out a few names above that might be a replacement for your K proceeds. Unfortunately they don't display the dividend growth metrics that I am looking for. Any other MLP/ BDC ideas?

     

    Thanks in advance.
    29 Aug 2014, 03:36 PM Reply Like
  • Founder
    , contributor
    Comments (194) | Send Message
     
    @b3player

     

    I didn't run the numbers past 2018, but we plan on keeping the new KMI shares. We don't have to pay tax on the sale, so the cash we get up front makes up for the initial reduced dividend.
    10 Oct 2014, 12:00 AM Reply Like
  • ron427z06
    , contributor
    Comments (15) | Send Message
     
    Sir Duke,

     

    I sold KMP and am now waiting to see what happens to the markets in general and KMI in particular. There has been no meaningful correction and I suspect one is due.

     

    I think other KMP sellers may be doing the same thing.
    25 Aug 2014, 05:17 PM Reply Like
  • romilar
    , contributor
    Comments (698) | Send Message
     
    I like the idea of being able to pick up more KMI at a lower price, but I'm not going to sell what I've got. I will - average in - buy as it drops (or not ) and ideally, end up with a share cost lower than what I have now.

     

    This is going to make me very top heavy in energy. I have always subscribed to the balanced portfolio approach, but I'm having a tough time trying to find a scenario where this co. fails or even drops significantly and stays down, short of an "act of god" type of catastrophe....Rom
    25 Aug 2014, 05:31 PM Reply Like
  • HedgerMan
    , contributor
    Comments (25) | Send Message
     
    I've owned KMP for over a decade for both dividend income plus growth but when you analyze this KMI acquisition and their proposed dividend plan, you're much better off selling your KMP stock and reinvesting the proceeds in other investments like REITS or other MLP's. If KMI ever get to where KMP's dividend was, I'd consider buying KMI unless it's overvalued like it is today. Essentially, what Kinder did was cut his dividend payout substantially and drop much more to his bottom line and his pocket. You could foresee something like this coming as Richard Kinder was acquiring KMI stock over the past several years but never bought any other Kinder stock. I feel that KMP is grossly overvalued right now and it's time to get out like I did.
    25 Aug 2014, 05:32 PM Reply Like
  • hroskind
    , contributor
    Comments (11) | Send Message
     
    We have been with KMP almost from the beginning and will stick with them. Many have overlooked the added value of their Jones Act Fleet
    25 Aug 2014, 05:41 PM Reply Like
  • PrimoCrestRider
    , contributor
    Comments (34) | Send Message
     
    The operative, and most important, word in the headline is MAY.
    25 Aug 2014, 05:44 PM Reply Like
  • bucs_2205
    , contributor
    Comments (70) | Send Message
     
    Exactly what I was thinking. It's like when they report that "[Insert athlete name] could sign as early as today." I would hope they wouldn't be able to sign any earlier or else we need to figure out how they are time traveling and go bet on Appalachian State to upset Michigan. Using "May" here gives them the ability to report something when there is nothing to report.
    25 Aug 2014, 09:07 PM Reply Like
  • smurf
    , contributor
    Comments (4486) | Send Message
     
    Am I the only one weary of the endless Kinder articles since the announcement? Seems like about 5,000 of them.

     

    Well, just like the rest of the media....beating a topic to death.
    26 Aug 2014, 02:36 PM Reply Like
  • b3player
    , contributor
    Comments (361) | Send Message
     
    Ok folks, I need a little help to make sure I am understanding this correctly. At todays closing prices (Tues 8/26) KMI price is $40.05 and KMR price is 97.17. As a KMR share holder, I will get 2.4849 shares of KMI stock for every 1 share of my KMR stock. My 100 shrs of KMR today are then worth $9,717. If this deal went through today, my 100 sirs of KMR converted to KMI stock would be worth $9952 (2.4849 x $40.05). That means I would arbitrage $235 to the good ($9952 - $9717 = $235). Further more, my dividend yield would be very close to 5% ($2 divided by $40.05 = .0499).

     

    So if I have done my math right (please someone check it to make sure I haven't made a mistake), I am a bit surprised by some of the posters here at SA who are suggesting that people will bail and go to other REIT's or MLP's. Where are you going to find a REIT or MLP with an annual dividend growth profile of 10% for the next four years that starts out with yield of about 5% and gives you a starting bonus of $235? I would think that a lot DGI folks will be very attracted to this company.
    26 Aug 2014, 11:00 PM Reply Like
  • Founder
    , contributor
    Comments (194) | Send Message
     
    @b3player

     

    Your numbers are correct. Another way to look at the dividend is 1 KMR x 2.4849 KMI x $2 dividend = $4.97. So for each share of KMR you will receive a $4.97 dividend starting in 2015 and a projected annual dividend growth rate of 10%.
    28 Aug 2014, 05:32 AM Reply Like
  • rewalker
    , contributor
    Comments (27) | Send Message
     
    MLPL is very, very good for me.
    28 Aug 2014, 08:55 AM Reply Like
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