Richard Kinder is the chairman, and a founder, of Kinder Morgan (NYSE:KMI). He and the president of the company make $1 per year in salaries. That means that much of his income is derived from his common stock holdings. His interests are firmly aligned with the shareholders. When they suffer, he suffers, and when they gain, he gains. He may be wealthier than many of the individual shareholders, but a significant part of that wealth is Kinder Morgan common stock. So this investment is not something he can ignore or treat lightly.
He is a major shareholder who owns more than 10% of the company. As such, this does insulate him from some of the market fickleness. It allows more long term thinking than is typical for a lot of public companies. Sometimes, that long term thinking is painful. But that thinking has also allowed the creation of a major company, Kinder Morgan, that did not previously exist. Long term shareholders have benefited from that creation even if the last few years have been painful.
His long term track record is still one of growth and one of increasing dividends and increasing stock prices. Lately, that has clearly not been the case. The market is still smarting from the dividend cut and so is Richard Kinder. Plus the company has had to selloff non-core assets and take on joint venture partners. None of that was previously planned.
However, the company has endured what is probably a once in a generation commodity price decrease. A similar sized decrease that really did not happen during a recession happened in the late 1970's and lasted into the 1980's. The Saudis re-entered the oil market in the 1980's and pushed the oil price down to near $10 a barrel or so. The result of devastating. Many companies went bankrupt and the industry shrank materially.
While there does not appear to be that potential imbalance this time around, the possibility of more bad news has not been eliminated. The industry wide operational improvements will lead to more oil and gas at key pricing points. The cash flow appears to be fairly level. That is much more important than any earnings swings. Keeping the company cash flow relatively flat while many customers go bankrupt or suffer financial distress is no small feat.
The diversification evident in the company structure is a tribute to the experience of the chairman. His intricate knowledge of the company would be hard to replace. He is probably the one most able to navigate the company through the very contentious Trump presidency. He will definitely be the one best able to respond to the challenges of the next four years (and possibly eight more years). That diversification should keep any potential future damage to a minimum as this new presidency unfolds.
Maybe Richard Kinder did not see the change in the lending industry requirements fast enough ahead of time. But when he realized the potential threats, he did cut the dividend and focused on changing the company balance sheet to meet the new lending environment. Maybe that broke some previous promises to shareholders. It also remains a source of market irritation that will only gradually fade.
But the fact is that the company financial strength has been basically maintained through the downturn. The company is in a position to do material deals. Though it will probably be in a better position over the next year or so. Having written so many articles about company presidents and chairman that eliminated alternatives until only bankruptcy is left, the dividend cut appears to be a much better price to pay. A repeat of the last few years would not be satisfactory to many shareholders. But then Richard Kinder does not appear to make many mistakes, and definitely does not appear to repeat them.
There is a fair amount of the market that believes that the growth days of Kinder Morgan are over. But the recent events that forced the change in balance sheet strategy have yet to play out completely. Large companies take time to change direction. Whether or not this company grows in the future has yet to be determined. But already, the company has one of the great growth records in the industry. So this stock could well have a place in a properly diversified portfolio. No future is ever guaranteed, but this company has a tremendous past filled with some significant accomplishments. Those accomplishments should not be overlooked now. The odds favor a growing future.
Many who thought that Kinder Morgan had a bright future a few years back now think that the company is a has been. But that is what makes the stock a relative bargain. This stock has been climbing a wall of worry and distrust for some time. The market bottom of this stock was about a year ago. But the market may not recognize it for some time. There is a tendency after a nasty shock to look in the rear view mirror. But successful investing is nearly always forward thinking.
So however long one has been invested in this stock, the best way to value the potential gains is to look into the future. Several key industry areas are growing and this company should get its fair share of that growth. Projects are always going to be delayed and there will always be unexpected impairments. But the fact is that the business of this company is in relatively decent shape. Richard Kinder will probably return the company to a growth trajectory as soon as feasibly possible. He will probably also grow the company conservatively enough to maintain the credit rating and balance sheet strength. One very large and painful hiccup should not change that view.
So, while President Trump throws the latest hapless victims under the bus, or maybe he unintentionally puts a company in the line of fire, the current shareholders have a man at the helm who is uniquely well qualified to respond to all those challenges and a lot more. Companies like this tend to recover their losses including the cut dividends over the following five years or so. That implies a future generous yield much better than the historical yields on an investment made now. Plus there will probably be some substantial capital gains.
Ironically, the stock is now probably a far safer income investment now that dividend increases are on the table starting next year. In return for the lower current yield this stock promises a far better and growing yield over the next five year period. Income investors can also anticipate some above average capital gains, some of which can be cashed and spent. Maybe that is not the typical way to invest for income, but the expected return from current price levels is far more visible than it has been in years. Of course it goes without saying that the stock should be part of a well diversified portfolio.
Richard Kinder saw the value of his investment in the company drop more than 50% and his income by about 75% from company dividends. People with the track record of Richard Kinder do not lose often and do not take losses lightly. So investors can reasonably expect a "catch-up" period. That period will probably start very soon as the market begins to anticipate a dividend increase in the future. The stock was a great investment at twice the price a couple of years back. So now it should be a downright steal at the current price.
Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of stock. Investors are advised to review all company documents, and press releases to see if the company fits their own investment qualifications.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.