Kinder Morgan

[mrpercentage]

Yep. Tossed half my emergency fund into Kinder Morgan. It was a direct stock purchase so Im waiting for the dust to settle. Kinder is definitely not Exxon or Conoco but do you really think its worth 70% less because bond holders forced them to cut the dividend to keep their investment grade due to a recent acquisition? Can you blame them for making an acquisition while energy is a nuclear wasteland and interest rates on future loans are going up? It seems like the time to strike for a long term deal to me. The dividend cut will hurt them though. A lot of investors look at them as a big dividend and now that they are not (a big dividend) and have betrayed trust--- it will be difficult to gain the equity back (over the next couple of years). I suspect they cut it 75% so they can begin to grow it or return some capital in the not too distant future.

Am I fool? Thoughts?

[sirdoug007]

Good luck. Sounds like a decent long term play but the next year or two could be rough.

http://seekingalpha.com/article/3741046-is-kinder-morgan-a-falling-knife


Sent from my iPhone using Tapatalk

[rhstache]

Well I own a fair amount of KMI and they have betrayed my trust although I don't think I am going to sell. I'm just not sure that is the thing too do, especially at these prices. They are a solid company but maybe we're too strong on the dividends from the start and I should have noticed that. I am at fault for that. Going forward times may be tough for quite a while but the price of oil and gas will not stay low forever, I am willing to wait.

[zz_marcello]

Hi.
I was reading the financial reports on their page and in the current situation they nearly don't make any profit.
So the dividend currently has to come from principal which cannot go on forever and makes no sense.
The stock is a bet about how long will Oil and Gas prices stay at this level.
Nobody would have imagined 12 month ago at $110 Barrel that we are at $38 today.
So at the end nobody can know what will happen in the next 12 month.
 
Nice week!

[Financial.Velociraptor]

Richard Kinder owns a crap ton of shares.  He takes no salary as CEO and gets paid the same way we do, dividends.  He is doing what is in his own *long term* self interest.  That's our long term self interest too.  I will not be selling shares.

[Aphalite]

I was really hoping the stock would go down even more, looks like it's going up today, not sure if it's because of Moody's revision or shorts covering or just general sentiment, but I was hoping it would get to $10, as it is still okay value but not a screaming deal

[JinBoston]

@mrpercentage - If you used your emergency fund to buy stock... it probably wasn't really your emergency fund?  Or your emergency fund was really larger than you needed?

@zz_marcello - I have looked at this as well and believe that earnings are artificially low due to overly high depreciation and amortization.   Same as you would have with real estate and tax depreciation.   That said, I don't know by how *much* and don't know how to figure real earnings.   

I suspect KMI is a good investment at these levels, but the accounting complexity is outside my comfort range.

[mrpercentage]

@mrpercentage - If you used your emergency fund to buy stock... it probably wasn't really your emergency fund?  Or your emergency fund was really larger than you needed?

It was my emergency fund.

I have a government job so might feel a little more secure than most. Its probably smaller than someone "needs". It is set aside for the purpose of "crap happens" but the crap just happened to Kinder Morgan instead. Still questioning the wisdom of the move myself

[JinBoston]

If you are left with an emergency fund of less than two months of expenses, I'm sorry, but it is face punch time.   

The emergency fund isn't just for losing your job.   What if you need to take unpaid FMLA for a couple of months?   What if you get into legal trouble?   

[mrpercentage]

Im working on it. As someone who a few years ago had over 10k in credit card debt-- I find being a little crazy throwing money into stocks a little refreshing. The only debts I have now are my house and a zero percent car loan. Im trying really hard to respect cash. I find it much easier to window shop stocks. Its better than buying the iPad pro I want right? And apple watch... and Final Cut... and the Ninja motorcycle. I covet. Oh yeah I covet. I don't covet the number in my bank account though. Never really was bitten with that fever

[EarlyStart]

do you really think its worth 70% less because bond holders forced them to cut the dividend to keep their investment grade due to a recent acquisition?

Based on your analysis, what do you think is the fair value of the stock? How did you value it? Some kind of discounted cash flow model or what? I've never been a fan of the "it's gone down a lot" argument.

[Dicey]

Sorry, have you confused this forum with a gambling site? Facepunches in multitudes are in order at once. Seriously, geththefuckoutta here.

Mod Note: Last comment crossed the line of forum rule #1.

Oops, sorry. I was aiming for mobster-ish humor and ended up in jerkland. Apologies all around.

[mrpercentage]

Have anything to say about Kinder Morgan and not about how I decide to fund my investing? I have 300 hours of sick time available, 40hrs of holiday pay, and 90 hours of vacation, and should that not be enough disability insurance-- not that it is anyones business.

[arebelspy]

Have anything to say about Kinder Morgan and not about how I decide to fund my investing?

Both of the last two comments (between you two) were about investing in the stock, not about how you funded it.

I'm also curious if there was any valuation besides "It's down a lot."

[mrpercentage]

I don't think too much valuation is needed. Wallstreet was pretty certain is was worth so much more before bond holders put the squeeze on for a dividend cut. That instills exactly the sort of panic I like to invest in

Bottom fishing is an art. Normal valuations do not apply. It is by definition timing [I guess its a gamble]. I have a couple of rules when bottom fishing. First do not bottom fish in a company you were not interested in 'in the first place'. The second is invest during maximum uncertainty [I did it right before the meeting but direct stock purchases have a delay]. That would be a coin toss if rule #1 wasn't in place. I plan to keep it a long time either way. I don't plan on selling direct stock purchases as they usually charge more than a discount broker and I can not controll the exact timing or price when the sell button is punched. I could transfer stock but my ego loves having my name on the shares. Finally,  I used some restrait as I didn't throw in everything I have [even though I really really really wanted to].

[arebelspy]

I don't think too much valuation is needed. Wallstreet was pretty certain is was worth so much more before bond holders put the squeeze on for a dividend cut. That instills exactly the sort of panic I like to invest in

Bottom fishing is an art. Normal valuations do not apply. It is by definition timing [I guess its a gamble]. I have a couple of rules when bottom fishing. First do not bottom fish in a company you were not interested in 'in the first place'. The second is invest during maximum uncertainty [I did it right before the meeting but direct stock purchases have a delay]. That would be a coin toss if rule #1 wasn't in place. I plan to keep it a long time either way. I don't plan on selling direct stock purchases as they usually charge more than a discount broker and I can not controll the exact timing or price when the sell button is punched. I could transfer stock but my ego loves having my name on the shares. Finally,  I used some restrait as I didn't throw in everything I have [even though I really really really wanted to].

So I guess that answered Earlystarts and my questions (or at least clarified if you had one).

I didn't see it answering Diane's, but we'll see if it satisfies her. ;)

[Aphalite]

I don't think too much valuation is needed. Wallstreet was pretty certain is was worth so much more before bond holders put the squeeze on for a dividend cut. That instills exactly the sort of panic I like to invest in

Bottom fishing is an art. Normal valuations do not apply. It is by definition timing [I guess its a gamble]. I have a couple of rules when bottom fishing. First do not bottom fish in a company you were not interested in 'in the first place'. The second is invest during maximum uncertainty [I did it right before the meeting but direct stock purchases have a delay]. That would be a coin toss if rule #1 wasn't in place. I plan to keep it a long time either way. I don't plan on selling direct stock purchases as they usually charge more than a discount broker and I can not controll the exact timing or price when the sell button is punched. I could transfer stock but my ego loves having my name on the shares. Finally,  I used some restrait as I didn't throw in everything I have [even though I really really really wanted to].

"Wall street" doesn't set the price, the entire universe of investors do. And normal valuations ALWAYS apply. It's fine to speculate, just acknowledge that is what you are doing

[JinBoston]

@mrpercentage

So, good news / bad news.   You have a mental tendency that makes you want to buy things, but at least you are aware of it.     Here's a clarifying question - Do you need to buy stuff, or do you need to do something risky?  Which is the attraction?  Both?

Could you get the same thrill by buying something far more safe but boring, say Hershey?  (Which is selling below the Value Line right now.)

I suspect you will do well with the purchase of KMI eventually... but I am sure this mental tendency will bite you in the ass at some point!   

Are you married?   Do you want to be?  Can you save up for that future?

[sirdoug007]

Could you get the same thrill by buying something far more safe but boring, say Hershey?  (Which is selling below the Value Line right now.)

What is the "Value Line" and does it have any documented predictive worth? 

[JinBoston]

Value line is a investment information service.   They provide "Value Line tear sheets" which are a one page 10+ year summary of a company.

The Value Line itself is a fundamental metric (usually a multiple of cash flow) that matches the average price of the company over time.   It is not strictly a calculated valuation, but the median valuation by the market over years.    You still have to use your brain, but you can learn ALOT about a company this way.   For a good non-cyclical company I think it makes an excellent way to value a company.

The Dow Jones ones are free:  https://research.valueline.com/research#list=dow30&sec=list

Take a look at MMM for instance:  https://research.valueline.com/api/report?documentID=2185-VL_20151016_VLIS_MMM_3592_01-30HC5BU38N5KTCCOEVH35T0UA8&symbol=MMM

I get the rest of their reports free from my employer.  You can also get them from your library.  Morningstar has pretty good valuations too, although I think they are a bit on the optimistic side.

[Thegoblinchief]

Don't have any dry powder to invest in individual stocks myself, but Kinder Morgan would be a low priority investment in that sector personally. I'd want a stake in at least 3 of the majors be even considering KMI, and even then there's the basket approach of an oil ETF.

Not mentioned in this thread but KMI is down not just because of oil but IIRC because they fucked a lot of people over in the reorganization from a MLP earlier this year.

[JinBoston]

As for predictive value, I think their is some research out there, in addition to Jeremy Siegle's work.

For me, I've looked at their historical reports and combined with my evaluation of moat and historical growth, I'm comfortable.

I'll look at writing up my whole process at some point.  Would be good to see if there are holes, other than the standard Boglehead "indexing is always better" issue.

PLEASE NOTE:  This is only with taxable funds after I've maxed out 401k / Roth with Vanguard index funds and maintain 6 months of living expenses in savings.  I could lose all my hand picked stocks and be just fine.

Also, I agree with Thegoblincheif.   I'm looking at XOM and CVX instead of KMI.

[mrpercentage]

Don't have any dry powder to invest in individual stocks myself, but Kinder Morgan would be a low priority investment in that sector personally. I'd want a stake in at least 3 of the majors be even considering KMI, and even then there's the basket approach of an oil ETF.

Not mentioned in this thread but KMI is down not just because of oil but IIRC because they fucked a lot of people over in the reorganization from a MLP earlier this year.

Im 50/50. I do 50% funds and 50% individual securities.
I do invest in both Exxon and Conoco monthly but will probably narrow that to one [while still keeping the other] in the near future to concentrate my investments. I want to build a more sizable position. Both are life time holds. I have committed myself to go into debt before I sell them. I will set them payout dividends to help me pay off whatever if I get in trouble. [I view them the same way you would a retirement account].

Kinder Morgan has been an interest for a while. Its in my top ten but crashing the way they did proved too tempting to turn away. Just to be clear they did cut the dividend further than I thought they would. I thought they might do 50% leaving them with a 6.5% yield. So the scale of the cut was a shock but I knew going in they was a good chance they were going to. Yes that is a betrayal of trust but after Kinder wipes the egg off his face I believe he will return to growing the dividend and expanding at a much more cautious rate. I could be wrong but I think he is honorable and will learn from this. I also thinks the assets are too great just to write off this company as crap for making a mistake.

and to answer the other questions
yes married.. house [dont get me started], and two kids [yes I invest for them $50 a month since birth.. so does my wife, so does grandma].
Yes it might bite me [my investing method] but I figure its better than the motorcycle I want that everyone else seems to chase at this age.
I really want to throw all my money [including what would be funds this year] into the big oils and REITs but I am tempering myself and insuring some safety net.

[My Own Advisor]

In a few years when this sector rebounds, just like the financial sector rebounded, you'll be rewarded.  I don't know when O&G stocks will come back, but they will.

I like KMI as an investment. Largest infrastructure company in the US. I figured it would be a 50% dividend cut but 75% is fine by me given this will increase the share price a bit short term and long-term, it puts them in a position to raise their dividend back up sooner. 

[EarlyStart]

I don't think too much valuation is needed. Wallstreet was pretty certain is was worth so much more before bond holders put the squeeze on for a dividend cut. That instills exactly the sort of panic I like to invest in

Bottom fishing is an art. Normal valuations do not apply. It is by definition timing [I guess its a gamble]. I have a couple of rules when bottom fishing. First do not bottom fish in a company you were not interested in 'in the first place'. The second is invest during maximum uncertainty [I did it right before the meeting but direct stock purchases have a delay]. That would be a coin toss if rule #1 wasn't in place. I plan to keep it a long time either way. I don't plan on selling direct stock purchases as they usually charge more than a discount broker and I can not controll the exact timing or price when the sell button is punched. I could transfer stock but my ego loves having my name on the shares. Finally,  I used some restrait as I didn't throw in everything I have [even though I really really really wanted to].

By the bold statement, you mean "it takes no valuation". Here's a waaayyyyy oversimplified very quick estimate I made in the last 20 minutes. If I was actually putting money  in the  stock, I'd build something much more robust, but here's the bare minimum I'd suggest doing:

> KMI_EPS_12_Mo_Trailing
[1] 0.85
> SPY_EPS_12_Mo_Trailing
[1] 9.459
> KMI_EPS_g_Est_5_Years
[1] 0.039
> SPY_EPS_g_Est_5_Years
[1] 0.0551
> KMI_Est_EPS_2020
[1] 1.029193
> SPY_Est_EPS_2020
[1] 12.36839
> SPY_Avg_PE_Ratio_Last_5_Years
[1] 21.62
> KMI_Est_Price_2020
[1] 22.25114
> SPY_Est_Price_2020
[1] 267.4047
> KMI_5_yr_CAGR
[1] 0.05518743
> SPY_5_yr_CAGR
[1] 0.05369566
> KMI_Beta
[1] 0.78
> Risk_Free_Rate
[1] 0.0224
> #CAPM formula: Ke= rFr + B(Kr-Km)
> Obviously_Oversimplified_KMI_Required_Rate_Return
[1] 0.04681062

So required rate of return = 4.68% and expected rate of return = 5.37%.

This very lazy analysis suggests that the price is pretty close to fair value, and maybe a just slightly under. I even was generous and gave it the same future p/e ratio as the S&P 500 even though it is projected to have lesser earnings growth. The  beta assumption is generous too because this entire sector will likely be more volatile going forward than it has been on average, historically.


If I were you I would do A LOT more research and spend the time to estimate a more robust valuation model, but at face value it's not a screaming buy or a screaming sell. 

[EarlyStart]

By the way, I hope I don't come across as condescending because I definitely don't mean  to. I have a coworker friend who tried to pick a bottom in this sector when crude was around $50. You may be right on the other hand. I really don't know.

Fund flows into XLE, the major energy ETF are actually positive in 2015 (more buyers than sellers). So just know that you are not really buying when others are fearful.


It seems like everyone and their dogs are trying to call the  bottom. Investors have been conditioned over the last several years to buy every dip because it has been rewarded repeatedly. We're like Pavlovian dogs buying immediately any time a price falls.

[mrpercentage]

One of the reasons I think valuations are over rated is they presume current conditions going forward. They are important but not everything. The sector of natural gas and oil will not stay this way. Coal might be in permanent decline with natural gas being so cheap, abundant, and cleaner.

I frequently use common knowledge, yield history, the current conditions, and where I think they are going. I also take into consideration what certain analysts say and debt [a mustashian trait]. I think Kinder's prospects look better than the United States debt to [edit: tax revenue] ratio. I think the United States is in threat of cutting dividends [entitlements] soon. I think the United States is guilty of over expanding and taking on too much debt just like Kinder. He is very American indeed right. Energy is also about as reliable as you can get. So in an uncertain world I pick energy and property. We are not going to go without those. Food is a good one too but taste is trendy and fickle [think Sizzler].

[mrpercentage]

Just thought my yield philosophy was worth sharing again

http://forum.mrmoneymustache.com/investor-alley/yield/


and as an update just incase anyone cares my direct stock purchase went through and Im currently up 7%. 'Meruca !@#$ Yeah!

Kinder @ $15.55 /share

[mrpercentage]

I just wanted to give a shout out to Jesus. Thank you God

[JinBoston]

@mrpercentage  - I may regret asking this, but why do you think REITs are a great investment right now?

[ScarElbow]

Currently having one eye on Kinder, one eye on God himself -- Morgan Freeman! Dude's good.

[frugledoc]

Just thought my yield philosophy was worth sharing again

http://forum.mrmoneymustache.com/investor-alley/yield/


and as an update just incase anyone cares my direct stock purchase went through and Im currently up 7%. 'Meruca !@#$ Yeah!

Kinder @ $15.55 /share

Nice one.  Was it just another small investment though?

[mrpercentage]

@mrpercentage  - I may regret asking this, but why do you think REITs are a great investment right now?

Depends. Lump sum [large investment at once] in general no.. if you want to start building into on monthly yes.. hell yes. I think rate hikes and Kinder Morgan fears will bring REITs down some [creating higher yield] because they use debt to grow. You have to pick wisely. Unless you are talking about Reality Income. Throw money in that whenever you have it and keep it for good. REITs are great to build into right now if you are a Dividend Growth investor. Steer clear if you are looking to build up a position to sell it later. Unless there is some special circumstance for a REIT. Warren Buffett is buying Sears RIET spin off right now. What does that tell you?

Nice one.  Was it just another small investment though?

Not for me its not. Small is relative. It was money I really shouldn't have even been spending. I will have to build it back up. Can't do that too often. I do acknowledge that for the long term the 7% jump means nothing and it may go back down-- however, it gives me warm fuzzies. I Uber drive on my days off just so I can invest more. Its all going into the big oils and that seems really appropriate doesn't it?

[mrpercentage]

Ugly day in the market right. Yet some REITS fare well...
some people go crazy when I do this but every play in the game counts. Pick your REITs carefully and you can do well even in a crappy market. I would expect some fallout though so suggest Dollar Cost Averaging

[My Own Advisor]

I've been DRIPping REITs for a few years now.  Don't intend to stop.  I plan on DRIPing KMI as well.