Kinder Morgan Partners: An Energy Toll Road

| About: Kinder Morgan (KMP)
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I've owned Kinder Morgan Energy Partners (NYSE:KMP) for about four years. It's been one of the best investments I've ever made. I believed it was a good buy then, I know it's a better buy now.

Kinder operates in five business segments.

First, the Product Pipeline segment. This consists of about 8,400 miles of pipe that delivers gas, diesel, jet fuel, and natural gas fluids to various markets.

Second, we have the Natural Gas Pipeline segment. This includes 15,500 miles of pipeline and gathering lines. This segment also includes facilities to store, treat, process and sell the natural gas.

Third, is the CO2 pipeline segment. Through 2,000 miles of lines, CO2 is delivered to oil fields that use carbon dioxide to increase the production of oil. This segment also includes something for that latent wildcatter in all of us, eight West Texas oil fields and 450 miles of West Texas crude oil pipeline.

Next up is the Terminals segment. One hundred twenty-four liquid and bulk terminal facilities and 33 rail heads make up this slice of the Kinder pie. These facilities are located in Canada and the United States.

Last is the Kinder Morgan Canada segment. Here, we have crude and refined petroleum product flowing through 2,500 miles of pipeline from Alberta, Canada, to British Columbia, Washington state and the Rocky Mountains and Central regions of the U.S.

The Natural Gas Pipeline segment is going to be a strong source of future growth for Kinder. In May, 2012, Kinder Morgan Inc. (NYSE:KMI), which owns KMP's general partner, acquired El Paso Corp. for the tidy sum of $38 billion. With this purchase, KMP became the largest pipeline company in the U.S. The increased sales KMP will realize with this acquisition will translate into larger cash distributions to its shareholders. Kinder is also investing heavily in natural gas shale opportunities.

Kinder Morgan Energy Partners is making a knowledgeable and calculated investment in the future of natural gas in this country. Some would call it a bet, but I disagree. Natural gas burns clean and it burns hot. More and more vehicles are converting to natural gas. After combustion, this fossil fuel doesn't leave a brown ring around your shirt collar. The advantages of natural gas are manifold, but I just want to mention two more; it's here in the United States and it's abundant.

KMP has made cash distributions since 1992. In the time I have owned the stock, the distribution amount has been increased 11 times.

At present, KMP has a yield of around 5.8%

$10,000 invested in KMP five years ago has grown to over $21,000.

An investment in KMP is not without worry. I'm sure you're aware that Kinder Morgan Energy Partners uses truckloads of leverage to make acquisitions. If interest rates head north, it would make it more difficult for KMP to purchase assets that are accretive to earnings.

An economic slowdown would certainly have a negative effect on the company.

The El Paso acquisition was a big bite. Trouble in the integration of El Paso's assets could lead to indigestion, or more appropriately, gas. (Sorry.)

I've also heard investors lament the fact that the computation of taxes where limited partnerships is concerned can get complicated.

To my way of thinking, when you own shares in Kinder Morgan Energy, you own a toll road. KMP is making money on every drop of product flowing through its lines. It passes a good bit of that money on to you. When you own a petroleum toll road, the vagaries of oil prices cease to be as much of a concern. Look at it this way. A man using a toll road and driving a 10-year old Toyota, pays the same as the fellow driving a BMW.

When KMP isn't moving product, it's storing it. Couldn't this be likened to you as an investor owning motels along the road?

And all that refining that KMP does when they're not moving or storing the product? That's a fine meal and a smoky scotch for the traveler. And yes, you own the restaurant.

Okay, the ball is in your court. Look things over and let me know what you think.


Disclosure: I am long KMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.