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Kinder Morgan Energy Partners (KMP): Q2 EPS of $0.37 misses by $0.10. Revenue of $1.85B (-4.4%...

Kinder Morgan Energy Partners (KMP): Q2 EPS of $0.37 misses by $0.10. Revenue of $1.85B (-4.4% Y/Y) misses by $350M. (PR)
Comments (5)
  • Dividends#1
    , contributor
    Comments (2237) | Send Message
     
    Can anyone explain how KMP seems to always miss estimates, and still raise distributions and also show an excellent increase in share price the last 4 or 5 quarters.

     

    I would really appeciate an answer from someone who understands their earnings report. I confess, I do not understand the #'s. I do not have a backround in economics, wall street or an MBA. The GAAP, the payout ratio which I do understand for normal stocks but I read here at SA does not apply to KMP. I dont understand why it is different for MLP's vs KO). Someone please help educate me a little as I realize it would be too dificult to teach alot online, any little will help.
    18 Jul 2012, 06:17 PM Reply Like
  • Brendan O'Boyle
    , contributor
    Comments (1035) | Send Message
     
    Because KMP pays out most of its cash flow in distributions EPS isn't a good way to evaluate it. You want to look at cash flow, or you can pretty easily come to a fair value estimate just with dividends.

     

    Fair Value = annual dividend x 1/(WACC - Div Growth)

     

    I would say that puts fair value at about 80 a share. WACC is the cost of your capital. This is the simplest way to do it for an MLP or REIT, although you have to make assumptions about future dividend growth. KMP is a great low risk income play especially considering how overvalued most REITs look.
    18 Jul 2012, 06:39 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2237) | Send Message
     
    Thank you for your response. However I do not understand it.

     

    WAAC is the cost of your capital? Does that mean how much interest they pay on borrowed money?

     

    I will try to study this on my own. If you can explain it like you would to a small child, that might help.

     

    I think Denzel Washington said in one of his movies, Explain that to me like I was in Kindergarden.
    19 Jul 2012, 10:57 AM Reply Like
  • Foosie
    , contributor
    Comments (413) | Send Message
     
    What makes these investments attractive is that usually most, if not all, of the distribution is tax deferred. When you receive a distribution from a MLP, it isn’t taxed as an ordinary dividend. It’s treated as a return of capital, which lowers your cost basis. So instead of paying tax on a dividend in the year it’s received, you pay capital gains tax when you sell the stock.
    For example, if you buy a MLP for $30 and receive a $2 distribution, your new cost basis is $28. Next year, when you receive another $2, your cost basis falls to $26. If you sell the stock at $30, you will report a capital gain of $4, but you will not have paid any taxes on the $4 during the years you received them.
    Because this is a tax-deferred strategy, MLPs usually belong in your taxable accounts, not your IRAs.
    18 Jul 2012, 06:44 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2237) | Send Message
     
    Thank you for your response. This helps me better understand the tax consequenses on my KMP. I will start to buy more in my taxable accounts.
    I still do not understand why the stock has not been sold off so far today after the big miss in revenues and EPS yesterday.
    19 Jul 2012, 10:51 AM Reply Like
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