KMI - On the road to disaster?

[Fermion]

RM- There is a playbook I have read about but never have really used. Just curious if that influenced your decision to buy as it proved true again. That being...A yield stock that has dropped huge over a fear of the dividend cut should be bought right after the cut is finally announced.

That didn't work out so well for Seadrill. If you bought right after they announced the dividend cut, you would have paid about $20, and it is trading right now for $4 and change.

 

[Running_Man]

RM- There is a playbook I have read about but never have really used. Just curious if that influenced your decision to buy as it proved true again. That being...A yield stock that has dropped huge over a fear of the dividend cut should be bought right after the cut is finally announced. It certainly fit this occasion. Did that influence you to buy?


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No actually I had my eye on the preferred once I saw the value it contained. First of all it made sense for common shareholders to switch to it, they could claim their loss, get a bigger dividend than what they had and participate in the upside of KMI if it were to happen. And the downside was limited to 7 percent, if it had been just the common shares I would not have purchased them. But with what I thought about the common value influenced my purchase of the preferred. I wish I had bought more, I thought there might be a big reaction down with cutting of dividend but realization it cemented financials for preferred led to the big reversal on preferred price.

Also, as I invest only in stocks that pay dividends, on elf my rules is to not buy a stock that cuts it's dividend. I deviated from this with the 6% of my portfolio I allow myself to invest in any stock I feel is of value. But I keep that to a small percentage of my total

 

[mathjak107]

bought kmi today at 16.06

 

[ESRwannabe]

I have done extensive research on the MLP model and there is a big debate on free cash flow and distributable cash flow, which is net of cap ex. KMI though a corporation has MLP traits. The market does not know how to value MLPs, or corporations such as KMI. I had a 1% allocation in MLPs, took that to 2% in July and now 3% as of yesterday. I like MLPFX, Oppenheimer, but overlayed that with AMLP yesterday so I can trade it intraday. I own a tiny bit of KMI, some WMB, and SE in my 3% weighting. Still have a profit on WMB! The better names in midstream will not only be able to maintain their distributions, but increase them. I read the quarterly commentary after the close today from the Goldman MLP & infrastructure fund and though there is a greater dispersion in projected distribution rates from GPs, the confidence in the overall rate of increase is still there. Bottom line, MLPs and corporate entities like KMI are priced as if their business model is unsustainable and the reality is there is misinformation in the market place about coverage ratios as they relate to free cash flow/ distributable cash flow. There was a prominent article in September that MLPs with less than a 1 coverage ratio would need additional capital to maintain distributions. This is misinformation. The coverage ratios include capex, so MLPs can have less than a 1 ratio, and still be in excellent shape to maintain and even increase distributions without any capital market infusions. After the tax loss selling and margin induced selling abates, quality midstream MLPs and I suspect KMI will continue their distributions, and even increase them. When the market understands this, there will be a violent snap back rally. I can't think of a asset as mispriced as MLPs are today in my twenty five years on Wall Street. If you don't own MLPs, this is a golden opportunity as the price of oil has little to do with their ability to pay distributions in the midstream space.

Just FYI. AMLP was up around 15% right before Christmas and up around 10% this last week. Someone certainly feels like MLPs are under priced and is buying. Unfortunately I have no dry powder to use anytime soon.

I definitely did not time the bottom, but I will probably do pretty well in a few years. My average cost per share is around $14.65 in AMLP. I have 18,680 shares and would like to get that to 20,000 provided I can do so while lowering my avg cost per share. No reason for 20k target other than I am obsessive compulsive and like nice round numbers.

 

[mathjak107]

i bought and sold in and out of kmi all month . got stopped out wed.

so had 3 nice up sales and 1 slight loss .

 

[StuckinCT]

Just FYI. AMLP was up around 15% right before Christmas and up around 10% this last week. Someone certainly feels like MLPs are under priced and is buying. Unfortunately I have no dry powder to use anytime soon.

I definitely did not time the bottom, but I will probably do pretty well in a few years. My average cost per share is around $14.65 in AMLP. I have 18,680 shares and would like to get that to 20,000 provided I can do so while lowering my avg cost per share. No reason for 20k target other than I am obsessive compulsive and like nice round numbers.

With the exception of a few of the MLPs that became too levered, I fear we will look back at this panic in a year or two and be kicking ourselves for not buying more. The business model is not only sound, but necessary, i.e. you have to have heat, electricity and gas for your car and that's why MLPs are absolutely necessary.
Even taking into account the crash in energy due to oversupply and less global demand, we have are woefully behind our pipeline infrastructure needs even as soon as a few years out in a 2% GDP world. It's a classic case of the glass is half empty.

It's funny, my average cost on AMLP is around $14 as well; I swapped my AMLP for MLPFX to take the loss and also because some of the AMLP holdings do fall into the category of over levered such as Oneok. With a $154,000 position it's now 2% of my portfolio. I am curious what percentage you think is appropriate, there was a Barron's article in September where a UBS advisor said 10%. I did not take that advice at the time because I was not comfortable with the inherent depletion aspect of MLPs- at 44 it's too early to be seeking maximum income and return of capital.

 

[ESRwannabe]

With the exception of a few of the MLPs that became too levered, I fear we will look back at this panic in a year or two and be kicking ourselves for not buying more. The business model is not only sound, but necessary, i.e. you have to have heat, electricity and gas for your car and that's why MLPs are absolutely necessary.
Even taking into account the crash in energy due to oversupply and less global demand, we have are woefully behind our pipeline infrastructure needs even as soon as a few years out in a 2% GDP world. It's a classic case of the glass is half empty.

It's funny, my average cost on AMLP is around $14 as well; I swapped my AMLP for MLPFX to take the loss and also because some of the AMLP holdings do fall into the category of over levered such as Oneok. With a $154,000 position it's now 2% of my portfolio. I am curious what percentage you think is appropriate, there was a Barron's article in September where a UBS advisor said 10%. I did not take that advice at the time because I was not comfortable with the inherent depletion aspect of MLPs- at 44 it's too early to be seeking maximum income and return of capital.

Well, unfortunately I don't have a lot of money. So my allocation to AMLP is essentially me going "all in" with my taxable account... My brokerage account is basically where I am making my attempt to retire early. If that fails I will be working until age 55 when I can retire off of a state pension.

I'll be 40 next year. If I'm going to ESR (i.e. switch to part-time work) it needs to happen in the next 5 years. Otherwise I'm going to give up on it and just accept that I will need to work full time until 55.

I'm willing to roll the dice and see how this plays out. If AMLP just doesn't make any significant dividend cuts then my gamble pays off.

Right now my AMLP dividend income is around $22k a year. For me that is huge... I make $60k and have been living off around $28k for over a decade. This is a very comfortable standard of living for me. About the only thing I would change is buying a house.

If this gamble pays off I'll soon have enough income to offset my yearly living expenses. My big problem then will be lack of diversification. I will need more income diversification before I can ESR or I'll need to bring in more money from working while ESR'd.

I work in IT doing server administration. A lot of this is now moving to the "cloud" which may work to my benefit. It might make it easier to get a part-time job working from home. If I could make like $20k I'd go for it even with my investment income being un-diversified.

I've got over 15 years experience as a sys admin. What I'd like is to work remotely from home for 20-30 hours a week. I think once I actually start to look that I'll be able to find something.

 

[Fermion]

ESR, my wife hopes to do something similar in her software developer field. She has about 25 years experience as a software engineer with several of the big boy companies but some partial work during retirement would be awesome.

I told her I would help out (maybe be her tester) if she figures out how to get a work from home short term contract.

 

[ESRwannabe]

ESR, my wife hopes to do something similar in her software developer field. She has about 25 years experience as a software engineer with several of the big boy companies but some partial work during retirement would be awesome.

I told her I would help out (maybe be her tester) if she figures out how to get a work from home short term contract.

The good thing is, I know more and more former colleagues that now work from home. Its definitely a growing trend at least from my anecdotal perspective. I know three people doing programming work, one doing DBA work, and two doing support type work.

This new trend to outsource the server infrastructure, i.e. cloud, is still in the early stages. I'm feeling pretty lucky that this shift is happening as it should create a lot of job ops for me to work from home doing essentially the same work I've been doing in IT.

 

[papadad111]

Trading KMI options has been interesting. 15 and 17.50 calls mostly.

 

[Fermion]

I checked KMI today and it was $13.40, so really still holding up pretty well comparatively.

FCX is $3.60 today!

 

[mathjak107]

if i still owned it that would not be my view that's for sure

 

[papadad111]

Bought more KMI just now and another traunch of March 2016 15 strike call options just as a gamble that a relief rally will happen between now and March 15th.

I do think the oil patch is finally starting to capitulate. OPEC counties are looking for any way to raise prices. It may take months to bottom but we are overdue for a bear market rally now.

I predict some strong gains short term for those with balls-o-steel.*

(Or the gender correct equivalent)

 

[Fermion]

You need balls of tungsten. I had balls of steel but they were melted when oil passed through $32.

 

[papadad111]

Ya. I hear you, boss. It's ugly. But there's a market here somewhere. We're just still hunting for bottom.

 

[mathjak107]

kmi just took another hit . 13.02 . irt was 60 bucks 1 year ago .

it may close in the 12 dollar range today at this rate .

 

[papadad111]

The dvyield is currently 3.9% so unless somebody isn't able to pay their cost to move oil , it seems like there's an upside or at least a 50 cent dividend.

 

[Lakedog]

Also bought more KMI below 13. Since their business is mostly transporting nat gas with rates not greatly dependent on commodity price (rates are set by FERC), seems like an opportunity if one is willing to hold for a while.

 

[Fermion]

The dvyield is currently 3.9% so unless somebody isn't able to pay their cost to move oil , it seems like there's an upside or at least a 50 cent dividend.

If you want a good divy yield, Seadrill Partners cut their dividend down to $1 per share. Today the price of SDLP is $2.85, meaning new yield AFTER the cut is 35%!

 

[mathjak107]

without the share price going up each dividend payment just reduces the price by the same amount . we need a better total return not just dividends with a further drop in price

 

[Mulligan]

without the share price going up each dividend payment just reduces the price by the same amount . we need a better total return not just dividends with a further drop in price

Price movement in and of itself is not a major concern for me (of course I can say that because mine do not move much) but I sure as heck am not the least bit interested in a company eating its own seed or worse yet, borrowing, just to issue a dividend.


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[mathjak107]

tell me about it . i once owned a reit paying great dividends. until i had an accountant look at the quarterly .

the dividends were worded in such a way if you didn't understand the terminology you didn't know it was not coming from operating profits but from the money ear marked for other property's and borrowed money .

 

[Mulligan]

tell me about it . i once owned a reit paying great dividends. until i had an accountant look at the quarterly .

the dividends were worded in such a way if you didn't understand the terminology you didn't know it was not coming from operating profits but from the money ear marked for other property's and borrowed money .

I am a preferred stock "dividend collector", but your example is exactly why I stay so conservative. I am not smart enough to figure out the "accounting gimmicks" companies use. I am very skeptical of Reits by nature, and have an even stronger distrust for shippers, Mreits, BDC's, and energy.


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[Fermion]

This is why I am becoming a fan of junk bonds over junk stock.

Junk stock, they can always cut the dividend, like Seadrill, RIG, FCX, KMI did.

They can't cut the bond payment without defaulting. They will throw the stockholders under the bus and back over them a few times before they will default on the bondholders.

 

[papadad111]

Buffet apparently is nibbling on oil now.... Buffett finds value as oil sinks http://www.cnbc.com/id/103299253