Author Topic: KMI - Kinder Morgan  (Read 128325 times)

RRJ

  • Full Member
  • ***
  • Posts: 102
Re: KMI - Kinder Morgan
« Reply #240 on: December 06, 2015, 09:51:22 PM »
http://www.barrons.com/articles/kinder-morgan-signals-possible-dividend-cut-1449293142?mg=id-barrons

Downside in the stock, now $17, seems limited.

Why though? People invest in MLPs for the dividend, and if the dividend is cut, there will be shareholder turnover. This has gone from a 10% dividend growth stock to a dividend cut. At some point this will be a value, but why get into this stock before the market digests the dividend growth story?

Putting a 9% target yield (which I see as fair for a 0% growth company) after assuming a 50% dividend cut gives me a FV of $11/share.

I do see your point.   A dividend cut obviously is tough for dividend investors to stomach and will cause turnover.   Much of it might even be forced selling by funds with certain dividend constancy parameters.  But who is to say the market has not already been digesting that?  I mean it's been hammered like what, 65%?  More?  As for valuation, I don't agree this is zero growth.  It might be zero growth for now, but this is temporary.  Their press release does not sound like management in denial, but squarely on top of their situation.  They are saying, we have rechecked the numbers twice, and we will have $5billion distributable cash flow for 2016.   We could cover our dividend with this as promised, but we have a higher priority first, which is protecting our credit rating.  Then taking advantage of growth assets on the cheap.   So we will cut the dividend for a while to do those things. 

At some point, call it four years to be safe, they will start catching up the dividend, and will have the same stellar assets with a better balance sheet and dividend coverage, and will be growing at probably 3% for inflationary average, plus 2% for anticipated natgas growth, plus 1% extra for good management and efficiencies of scale when adding assets from smaller players.  So call it 5-6% growth conservatively.  If in 4 years I am getting my current dividend of $2.00 again, assuming no growth from today (conservative), and paying $17 a share today, then I would assume the market will have reappraised this stock at some point and see some growth and price it at the historic yield of say 6%.   $2.00 / .06 = $33.33 in share price.  $17.00 to 33.33 in 4 years is not a bad return, not counting dividends received along the way.  And most importantly, this assumes no good surprises along the way, such as oil going back up.  And this is kind of a sure thing, or as sure as these things get.  I mean, are people going to be living in the US and needing energy? 

If you see war on the horizon, which Russia desperately wants to raise oil prices, that only helps to have things happen a bit quicker.  A good hedge stock for lots of international strife. 


thefatbaboon

  • Sr. Member
  • ****
  • Posts: 460
Re: KMI - Kinder Morgan
« Reply #241 on: December 07, 2015, 02:29:58 AM »
Im thinking that kinder will be loath to cut the dividend. And mess up the great record. Especially when the fundamentals of dcf production next year are exactly as expected. Also perhaps at the current valuation he, Sarofim, Morgan, some of the local fund/pe guys will be happy to commit to reinvest dividends via a scrip programme.

I'm pretty sure they can get to a minimum 20% reduction in total dividend in this way. Perhaps more if others sign up to scrip. Add to that a commitment to not meaningfully increase the dividend for a few years. That's a 3bn saving from expectation over 2016 and 2017. They will want Feedback from the ratings agencies that that is enough. Personally I think it might be. Just. If it isn't enough the next step would probably be to look at jv for either some existing assets or new projects.

Personally I think there is a decent chance they find a way through without a dividend cut for those who don't want one. Obviously just my guess. 
« Last Edit: December 07, 2015, 04:16:15 AM by thefatbaboon »

RRJ

  • Full Member
  • ***
  • Posts: 102
Re: KMI - Kinder Morgan
« Reply #242 on: December 07, 2015, 05:31:02 AM »
Fatbaboon - Yeah, I think you could be right.  I suspect their answer is "whatever it takes to truly make Moody's happy."  So they can't answer just yet until they walk them through it carefully and see what they say.  I really do think your idea of a scrip dividend plus an explicit "no growth for a few years" policy may be enough, and they might go that route.  I actually would prefer they cut it, and significantly.  I'm a buyer and if stock tanks further, all to the good for me.  I want to say my average cost in at this point is something like $21-$22.  I'd like to keep averaging down a bit. 

Saw a video of T Boone Pickens and Carl Icahn.  Pickens says oil supply is already dropping and will have to get back up to $70 a barrell in six months.  He's usually early.  Frankly, I believe management that KMI is not sensitive to oil prices near as much as folks think, so I am not sure how much of a boost it would be.  $10 million per dollar increase per barrel.  So that would be $300 million if back up to $70. 

I too am wondering about non-capex growth capacity in pipelines.  I suspect it's there, but limited.  For the same reason they are so stable with take or pay contracts -- they are longer term contracts, which they take on up to capacity.  So with increased pipeline demand it probably takes a while for contracts to roll off and get repriced at higher rates they can charge.  Plus regulators wouldn't let them increase too quickly.  Now, if you've had a period of no growth for a while and the pipes need reinvestment, then regulators would recognize that and allow some increased rates so that the reinvestment can get taken care of. 


Palantir

  • Hero Member
  • *****
  • Posts: 2620
Re: KMI - Kinder Morgan
« Reply #243 on: December 07, 2015, 04:34:52 PM »
Looks like KMI is on its way to my $11 target price. Yee haw!
« Last Edit: December 07, 2015, 04:36:53 PM by Palantir »
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

Aberhound

  • Sr. Member
  • ****
  • Posts: 326
Re: KMI - Kinder Morgan
« Reply #244 on: December 08, 2015, 09:58:00 AM »
Do I think the war/civil war in the middle east will extend to oil producing and distribution centres by may 2017? Yes. I am not so sure of the date.
Will middle east oil/gas tanker insurance get prohibitively expensive? Yes.
Do I think the priority is to cut the dividend to maintain the credit rating? Yes.
Will capex be cut as the economy deteriorates? Yes but reverses if middle east war cuts oil supplies.
Will capital continue to concentrate in the US as war increases and the world economy worsens? Yes

Kissinger explains that a Shia/Sunni war will be severe and may go nuclear. See his interview on Google Talks.

All these factors led me to buy a small amount of the warrants as the risk is assymetric and it is a cheap hedge to preserve wealth if some of these things occur.

benchmark

  • Sr. Member
  • ****
  • Posts: 304
Re: KMI - Kinder Morgan
« Reply #245 on: December 08, 2015, 12:17:27 PM »
Do I think the war/civil war in the middle east will extend to oil producing and distribution centres by may 2017? Yes. I am not so sure of the date.
Will middle east oil/gas tanker insurance get prohibitively expensive? Yes.
Do I think the priority is to cut the dividend to maintain the credit rating? Yes.
Will capex be cut as the economy deteriorates? Yes but reverses if middle east war cuts oil supplies.
Will capital continue to concentrate in the US as war increases and the world economy worsens? Yes

Kissinger explains that a Shia/Sunni war will be severe and may go nuclear. See his interview on Google Talks.

All these factors led me to buy a small amount of the warrants as the risk is assymetric and it is a cheap hedge to preserve wealth if some of these things occur.
Which warrant did you buy?

Palantir

  • Hero Member
  • *****
  • Posts: 2620
Re: KMI - Kinder Morgan
« Reply #246 on: December 08, 2015, 01:31:55 PM »
Told you so!
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

TwoCitiesCapital

  • Hero Member
  • *****
  • Posts: 1931
Re: KMI - Kinder Morgan
« Reply #247 on: December 08, 2015, 02:25:06 PM »
http://www.barrons.com/articles/kinder-morgan-signals-possible-dividend-cut-1449293142?mg=id-barrons

Downside in the stock, now $17, seems limited.

Why though? People invest in MLPs for the dividend, and if the dividend is cut, there will be shareholder turnover. This has gone from a 10% dividend growth stock to a dividend cut. At some point this will be a value, but why get into this stock before the market digests the dividend growth story?

Putting a 9% target yield (which I see as fair for a 0% growth company) after assuming a 50% dividend cut gives me a FV of $11/share.

Told you so!

Looks like the dividend was cut by more than 50%. Would you maintain that the larger than expected cut is good for forward prospects and maintain your $11 target, or do you think this should go to $6-7 as implied by 9% on the new dividend schedule?

Picasso

  • Hero Member
  • *****
  • Posts: 2014
Re: KMI - Kinder Morgan
« Reply #248 on: December 08, 2015, 02:32:02 PM »
Don't know why anyone tries or tried to value this on the dividends. That's irrelevant. When someone tells me the right EV/EBITDA multiple for this business I'll start to get interested. So far everyone is still stuck in investing kindergarten thinking this is about the dividend yield.

HJ

  • Sr. Member
  • ****
  • Posts: 413
Re: KMI - Kinder Morgan
« Reply #249 on: December 08, 2015, 03:22:38 PM »
Don't know why anyone tries or tried to value this on the dividends. That's irrelevant. When someone tells me the right EV/EBITDA multiple for this business I'll start to get interested. So far everyone is still stuck in investing kindergarten thinking this is about the dividend yield.

Bingo! 

So what is the proper multiple for something like these guys on EV/EVITDA basis?