Lanny’s Recent Purchase – KMI

Back at it again!  Finally, after I just stated I haven’t made a purchase in weeks and nothing looked appetizing, I made a purchase on October 22nd – when the market was…. ALL GREEN almost.  Well, in every green day there has to be one stock that looks undervalued.  I ended up buying a stock I already own after another dividend increase.  Let’s see who I purchased.

Kinder Morgan Inc. (KMI)

Yes, you read the title right.  Kinder Morgan has been added back to my portfolio, and it wasn’t the solo stock that was on my watch list that was released on Friday.  In fact, I already owned approximately ~66 shares that produced, at one point, $129.36 shares on $0.49 per quarter.  However, they released their earnings, which went along as expected with further pressure and slight tightness in their cash flow.  However, I believe they just displayed a sign of confidence in their cash flow in the future.  First, their target at the end of the year was to have an annual dividend of $2.00 per share or $0.50 per quarter.  They smirked and increased their dividend to $0.51 from $0.49 or an annual $2.04 per year dividend, and went beyond their goal of $2.00 or 2% higher.  Further, they came into the year at $0.44 per quarter.  The increases now throughout the year have led to $0.51 or an astounding 15.91% dividend growth this year!

I say that’s pretty phenomenal.  I do not believe this growth rate will continue but they hit on 2 items: One, we are going to hit our dividend goals and two, we are going to show our confidence in our ability to produce cash flow by going beyond our goal right now and instill faith in the investor.  They further stated this in their press release:

“Additionally, while we are at the beginning of our budget process for 2016, we currently expect to increase our declared dividend for 2016 by 6 to 10 percent over the 2015 declared dividend of $2.00 per share. We expect this range will provide the flexibility for us to meet our dividend and have excess cash coverage.”

They accomplished that for me, at least.  I would expect a 5-7% growth rate going forward into 2016, but with the yield where it’s at… well I’m not complaining let’s say.  I know this isn’t on Bert’s 5 always buy stock list and is finally a stock purchase that is something other than Emerson Electric (EMR), which I’ve purchases three times already this year.  To show some figures with what this purchase is, let’s dive into the summary.

KMI Stock Purchase Summary

I purchased midday on October 22, 2015 34.00 shares at $29.29 per share + commissions of $6.95.  Total cost = $1,002.81.  Dividend Income added at $2.04 per share per year, 34 X $2.04 = $69.36 added.  Total shares of Kinder Morgan (KMI) owned now stands at ~100 shares in my portfolio, which now produces a forward annual amount of over $204 of dividend income per year.  At the price of approximately $30 per share, that is close to 7 new shares added per year, which would add $14 going forward upon reinvestment at the analyzed price of $30.  Loving this!  Also, if 2016 brings 5% growth to the dividend, $204 would turn into $214 and so forth… without including new dividend reinvested shares throughout the period.  Also, forgot to mention, at $2.04 in dividends per year at a purchase price of $29.29, this yield was at 6.96% going forward.  Therefore, the yield was higher than my weighted average yield, as well as the dividend growth of 15.91% was higher than my weighted average dividend growth.  One last piece of icing – my first purchase price was approximately $32.45.  Therefore, the stock dropped roughly 9.7% from the first time I purchased KMI last year.  Love to average down my cost this way, add more yield for less money (one of the reasons why a downturn is good for a dividend investor).   Further, a close to $70 add allowed me to cross the $6,400 mark which aims me closer to my $6,750 projected dividend income goal by the end of the year, still have a mountain to climb, but this pipeline is helping me get there.

All in all, I was happy with this purchase and it had been essentially three weeks since I made a move into the market, as stocking capital during appreciating days in the market isn’t a bad thing.  Just need to find signs of opportunity (which one could argue I should have purchased when it was down in the $25-26 range a few weeks ago) and strike when you can/are able to.  What does everyone think of this dividend stock purchase of KMI?  Think this was a good purchase?  Would you buy?  What else are you seeing?  Thank you for coming by and as always – appreciate your input and comments.  Talk soon!

-Lanny

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27 thoughts on “Lanny’s Recent Purchase – KMI

  1. Lanny,
    Slick move dude. They have a very stable position as a necessary middle man. They will provide income for a long time to come, and I am super excited about their recent raise.
    Long KMI,
    – Gremlin

    • Gremlin,

      Thank you very much. Long KMI all day at the moment, necessary, huge moat from a competition standpoint and am excited for a 5-6% going forward. Heck, they may even surprise us with strong results, we shall see.

      -Lanny

    • John,

      No worries on the price of oil, this isn’t the first time oil has gone through this and definitely won’t be the last. Patience is a virtue my friend! In the meantime – enjoy the dividend checks!

      -Lanny

  2. Hi Lanny.
    I like your ans your buddy’s blog. I also like the business model and yield of KMI. I am just worrying about their payout ratio. It is
    something near 300%. So I am wondering if this dividend payment will be stable for the future? Would really appreciate if you could take some of my fear from my shoulders?:) take care and greets. Hubi

  3. Lanny,

    Nice move there. Even with the reduced dividend growth guidance, you’re still looking at a very appealing dividend growth rate when considering that sky-high yield. That’s rock star stuff.

    I picked up a few shares when it dropped below $28 not too long ago, even though I honestly didn’t want/need more. I’ll gladly pick up a few more shares if it drops somewhat significantly from here. This one continues to pump fresh, hot dividends my way. I love it. 🙂

    Cheers!

    • Mantra,

      Thank you for coming by. I agree, with an almost 7% yielder and a 5%+ growth rate outlook – I will take that almost any/all day.

      I was tempted to pick it up then, but wanted to see results and comments from management, which we obviously received. I have 100 shares and not sure if I’m tapped out here or not, I wouldn’t go more than 1K more I don’t believe… we’ll see. If they drop another $1 or so, may have to scoop up more of the pipeline..

      Thanks again Mantra, pumped for the future and your div income for the remainder of the year!

      -Lanny

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  5. I’d like to add more if I could but my position is full at the moment. I may do so anyway if the price keeps falling. Thanks for the update.

    p.s. – I still haven’t seen KHZ announce a dividend which is due in a few days. Nothing from investor relations on the matter either. They are due for an increase as well. Hoping they haven’t’ decided to cut it. You and Bert both own it still ?

  6. Nice yield that’s for sure. Pipelines are probably the “safer” way to play energy in the current climate. Clearly, they are less sensitive to the underlying commodity price swings. Great pick up for some fresh yield!

    • 2ndHand,

      It’s funny. Yield is a bonus with it – I bought them before when they were yielding 5% and it’s incredible to see them over 7%, that’s all I have to say. I’m going to be excited come November collecting that one and reinvesting, no doubt. I actually bought 36 more shares at $27.71 I haven’t posted about. That income…

      -Lanny

  7. It looks like the energy sector has stabilized. We will have some more idea when the Iran’s oil hit the market. But the support of oil around $40 is strong. So short term you don’t see much more decline. Long term? That’s what we’re in for baby! Great buy, bro.

    Thanks for sharing!

    • Vivianne,

      Thank you! All in the for the long term – loving the purchase and guess what – I actually ended up buying 36 shares more at $27.71 (dropped over 5% from this price point!) I just couldn’t resist, eh?

      -Lanny

  8. I am a new dgi, so don’t shoot if I ask stupid things. But I’m wondering, the payout ratio according to Morningstar is over 346% at the moment and it’s over 100% since 2012. The money should be gone sooner or later. You can’t sustain that forever.

    Aren’t you afraid that KMI will cut dividend big time if oil price stays that low?

    Walter

  9. Pingback: Recent Buy | Passive Income Mavericks

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