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What d'ya think of KMP/CIM?
Old 08-11-2011, 03:47 PM   #1
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What d'ya think of KMP/CIM?

I've got these as part of my portfolio (only about 5% at this point). I just wanted to get into dividends, but reinvest if/when I wanted.
As it is, I have to wait until Aug 15th for KMP to kickoff their $1.15/shr to my core account. But I have every intention on buying some more once I get some more funds to transfer into the IRA I have those stocks in.

That $1.15/shr works out to be over 6%/yr increase in my core account, although the stock is down from where I bought it in my last batch (I bought at 2 different times).

And on a side question, does anyone know what effect those types of stock's dividends play in annual tax filings since they are held in an IRA?
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Old 08-11-2011, 06:31 PM   #2
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While Chimera is classified as a REIT, I believe it invests primarily in mortgage assets. I'd classify that as a bit high on my risk meter. The high yield is a good indicator of the amount of risk you take on when investing in CIM.
KMP is a much more stable master limited partnership that has a good solid history of distribution growth. MLP's within IRA's can work well. One thing to keep tabs on is the amount of UBTI (unrelated business taxable income) that is generated each year by the partnership. If the total UBTI within an IRA account exceeds $1,000, there are taxes due on the amount over $1,000 that must be paid by the account. It's very unlikely you'd have close to $1,000 in UBTI unless you owned a large amount of MLPs, but it is something to be aware of.
To get around the UBTI issue KMP has a "sister" company KMR that pays the same distribution, but pays it in additional shares, so is treated as a "stock split" and incurrs no UBTI. KMR is my largest individual MLP holding and most of it is held within my IRA. The yield is also a bit higher than KMP. It might be worth researching.
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Old 08-11-2011, 10:52 PM   #3
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Although KMP looks any trades like a stock in is actually a master limited partnership. They are treated significantly different that stocks and can be pretty complex, although easily handled by turbotax etc. Although it is possible to have a KMP or another MLP inside a IRA, you are asking for additional tax complexities. Schwab threatened me with hundreds of dollars in additional fees if the UBTI exceeded $1,000.

I second Thormoles recommendation of using substituting KMR for KMP inside of an IRA, basically the same great company slightly higher yield none of the complexity.
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Old 08-12-2011, 01:36 PM   #4
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Thanks for the information, it is very helpful!
And you're right, I'm only at a fraction (about 1/10th) of the UBTI for this account. But it's definitely good to know about it.

Quote:
Originally Posted by Thormole View Post
While Chimera is classified as a REIT, I believe it invests primarily in mortgage assets. I'd classify that as a bit high on my risk meter. The high yield is a good indicator of the amount of risk you take on when investing in CIM.
KMP is a much more stable master limited partnership that has a good solid history of distribution growth. MLP's within IRA's can work well. One thing to keep tabs on is the amount of UBTI (unrelated business taxable income) that is generated each year by the partnership. If the total UBTI within an IRA account exceeds $1,000, there are taxes due on the amount over $1,000 that must be paid by the account. It's very unlikely you'd have close to $1,000 in UBTI unless you owned a large amount of MLPs, but it is something to be aware of.
To get around the UBTI issue KMP has a "sister" company KMR that pays the same distribution, but pays it in additional shares, so is treated as a "stock split" and incurrs no UBTI. KMR is my largest individual MLP holding and most of it is held within my IRA. The yield is also a bit higher than KMP. It might be worth researching.
Quote:
Originally Posted by clifp View Post
Although KMP looks any trades like a stock in is actually a master limited partnership. They are treated significantly different that stocks and can be pretty complex, although easily handled by turbotax etc. Although it is possible to have a KMP or another MLP inside a IRA, you are asking for additional tax complexities. Schwab threatened me with hundreds of dollars in additional fees if the UBTI exceeded $1,000.

I second Thormoles recommendation of using substituting KMR for KMP inside of an IRA, basically the same great company slightly higher yield none of the complexity.
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