Today I’m taking a look at Kinder Morgan Energy Partners (KMP). This the sixth article out of fifteen covering a dividend stock list recommended by Seeking Alpha contributor Insider Monkey. Most of the companies were 4%-5% dividend yielders. I think the Kinder Morgan Energy Partners is way overvalued by the market. See my quick look analysis below for details. KMP spends a lot of money on capital expenditures to expand its revenue in the future. They are focusing on the infrastructure necessary to export liquid natural gas to Asia (meaning China). China is going to have a large recession because they are trying to use Keynesian mercantilist economic policies to achieve their 8-9% growth. I think their capital projects won’t be as profitable as the CEO hopes they will be.
Kinder Morgan Energy Partners (KMP)
Share price: $86.98 closing price yesterday
Shares: 333.02 million
Market capitalization: $28.97 billion
Preferred stock: This company has a huge preferred dividend that takes away from what is available to the common share dividend.
Bonds outstanding: $13.7 billion. Look at all that debt coming due between now and 2022!
What the company does – Kinder Morgan Energy Partners is one of the largest master limited partnerships, engaged in the transportation and storage of energy commodities. It operates more than 37,000 miles of pipelines for oil and natural gas transport. It also owns 180 terminals that can handle and store liquids, gases, and dry-bulk materials, such as coal. As a partnership, the company pays no corporate income tax, but its tax burden flows through to individual unitholders.
Morningstar’s take – Our chief critique of Kinder Morgan Energy Partners has been that the burden of incentive distributions to its general partner will make it difficult to maintain its high historical distribution growth. We’ve argued that the increasing drag of the “GP burden” will make it challenging for Kinder to target distribution growth rates in excess of 5%--and we may have been mistaken.
DIVIDEND RECORD – Kinder Morgan Energy Partners is a steady dividend grower.
Dividend: $1.16 quarterly
Dividend yield: 5.3% ($4.64 annual dividend / $86.98 share price)
Dividend payout ratio: 2,900% using the lastest Google Finance EPS of $0.16 –OR- 314% using the average adjusted earning power of $1.48 for common shares
EARNING POWER – $1.48 six year average adjusted earning power per share of common stock
(Earnings adjusted for changes in capitalization)
EPS | Net income | Shares | Adjusted EPS | |
2006 | $2.04 | $972 M | 225 M | $2.92 |
2007 | ($0.09) | $590 M | 237 M | $1.77 |
2008 | $1.94 | $499 M | 257 M | $1.50 |
2009 | $1.18 | $332 M | 282 M | $1.00 |
2010 | $1.40 | $431 M | 307 M | $1.29 |
2011 (est) | $0.38 | $124.13 M | 333.02 M | $0.37 |
.
EPS | Net income | Shares | Adjusted EPS | |
2011 Q1 | $0.18 | $57 M | 317 M | $0.17 |
2011 Q2 | ($0.19 | ($62 M) | 321 M | ($0.19) |
2011 Q3 | ($0.25) | ($84 M) | 331 M | ($0.25) |
2011 Q4 (est) | $0.64 | $213.13 M | 333.02 M | $0.64 |
2011 total (est) | $0.38 | $124.13 M | 333.02 M | $0.37 |
Six year average adjusted earnings per share is $1.48
Consider contrarian buying below $11.84 (8 times average adjusted EPS)
Consider value buying below $17.76 (12 times average adjusted EPS)
Consider speculative selling above $29.60 (20 times average adjusted EPS)
Kinder Morgan Energy Partners is currently trading at 58.7 times average adjusted EPS. This is highly speculative pricing.
BALANCE SHEET – A mountain of debt
Book value per share: $22.93
Price to book value ratio: 3.79 (under 1.0 is good)
Current ratio: 0.46 (over 2.0 is good)
Quick ratio: 0.36 (over 1.0 is good)
Debt to equity ratio: 1.54 (lower is better)
% of assets made up of property, plant, & equipment: 65%
CONCLUSION – Kinder Morgan Energy Partner is an speculatively priced stock at 58.7 times average earning power. It has a nice dividend yield, but it can’t afford to pay that dividend by and measure other than issuing more debt and stock. If you buy KMP at its current price, then you will be paying almost 4 times its book value. I wouldn’t even consider a second look at KMP until the price falls down to the $22.93 - $17.76 range.
DISCLOSURE – I don’t own Kinder Morgan Energy Partners (KMP).
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