Kinder Morgan Energy Partners (KMP). Building for the Bust.

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!

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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

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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

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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.

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DISCLOSURE – I don’t own Kinder Morgan Energy Partners (KMP).

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Published in: on February 10, 2012 at 10:27 am  Leave a Comment  

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