My journey of becoming financial independence by 35 years old
Has everyone portfolio fully recovered yet? What a wild crazy few months seeing the S&P with 10% correction. Anyhow, Most of the everyone’s portfolio should be recovering, some of you who has taken advantage of the sell off might even seeing the bigger jump. My account went back to the $200K level, there is nothing to brag, as it has been more difficult to buy since the stock has recovered.
But I manage to find a few stocks that are majorly undervalued, and I consider them as deals right now WMT and KMI. I’ve recently added another 10 shares of KMI, this will add $20.4 to my yearly dividend or at the yield of 7.48% on $27x.xx investment. BAC is half of my portfolio and paying around 1% in dividend, to offset that, I have AT&T, KMI, and a few REITs on my portfolio to increase the overall yields.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure firms in North America. It consists of six lines of business that operate 84,000 miles natural gas pipelines, 165 terminals and other product pipelines throughout Canada and the United States. In 2011, KMI separated from its parents company – Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners. Kinder Morgan became one of the largest firms specializing in midstream energy. The company is one of the first to start taking advantage of master limited partnerships (MLPs) and their tax-free status. Since 2011, Kinder Morgan has consistently paid dividends and steadily increased them every year.
What is KMI dividend policy?
KMI is structured as MLP. Think of it as a REIT of energy sector. It must pay over 90% of their earnings to remain exempt from paying federal income taxes, resulting in a high overall payout ratio. The payout ratio ranged from 162% in 2011 on a prorated basis to 253% in 2014, indicating Kinder Morgan paid more than it earned. However, depreciation is one of the largest noncash expenses on the income statement, resulting in sufficient cash from operations to cover cash dividends.
Kinder Morgan typically pays declared dividends to common shareholders on or about the 16th day of each February, May, August and November. I have a small February payout, so adding more KMI should booster my cash flow.
What’s KMI dividend yield?
The dividend yield constantly changes as a result of market price fluctuations and occasional changes in dividend policy. From 2011 to 2015, the company’s low and high stock prices were $23.81 and $44.34, respectively. As the company’s dividend increased over the years, its dividend yield fluctuated from 2.63% in April 2014 to 7.48% October 2015. This increase in the dividend yield was primarily attributable to an over 33% decline in equity price from the stock’s high in April 2015 as a result of worries over the long-term impact of decreases in oil and natural gas prices. From 2011 to 2015, the dividend yield was about 4% on average.
image credit: https://g.foolcdn.com/editorial/images/178825/kmi-dividend_large.png
One of the greatest threats to the company’s dividend policy is prolonged price decline for oil and natural gas, which seems likely for the foreseeable future. Kinder Morgan’s budgeted oil price to sustain its dividend per share of $2 is $70 per barrel and its natural gas price is $3.8 per one million British Thermal Units (MMBTu). If the oil and natural gas prices remain below these values, there is a danger of a dividend cut or a complete suspension of dividend payments until energy prices stabilize. Also, Kinder Morgan routinely hedges its exposure to energy price fluctuations, which may mitigate the negative effect of low energy prices. Kinder Morgan disclosed that it expects $8 billion of earnings before depreciation and amortization, which should sustain its current level of dividend payments for 2015.
What are the expectations?
What are the main takeaways?
Image credit: Yahoo finance
What do you think? Are you going to wait until interest rate actually increase to add more energy? Or waiting until Iranian Oil come to the market to see if the Oil Market stabilize first?