Tuesday, May 20, 2008

Kinder Morgan Energy Partners (KMP) Dividend Analysis

Kinder Morgan Energy Partners, L.P. owns and manages energy transportation and storage assets in North America. It operates in five segments: Products Pipelines, Natural Gas Pipelines, CO2, Terminals, and Trans Mountain.


Kinder Morgan Energy Partners is a not dividend aristocrat but a dividend achiever. It has been increasing its dividends for the past 12 consecutive years. Over that period the company has delivered an average total return of 20.00 % annually to its loyal shareholders.
At the same time the company has managed to deliver an impressive 21.30 % average annual increase in its net income from 1998 to 2007.
The ROE increased from a low of 7% in 1998 to a high of 24 % in 2006, before decreasing to 13 % in 2007.
Annual dividend payments have increased over the past 10 years by an average of 15.30% annually, which is lower than the growth in net income. A 15% growth in dividends translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1993, KMP has indeed managed to double its dividend payments almost every five years.
If we invested $100,000 in KMP on December 31, 1997 we would have bought 5903 shares (adjusted for a 2:1 split in August 2001). Your first quarterly check would have been $1658.75 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $9920.24 by October 2007. For a period of 10 years, your quarterly dividend has increased by 213 %. If you reinvested it though, your quarterly dividend would have increased by 498%.
The dividend payout has remained above 100% for the majority of our study period. When put into the perspective of the past 10 year’s average though, it looks pretty normal for the company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I think that KMP is attractively valued at its current price/earnings multiple and solid dividend growth. The company also boasts an above average dividend yield.

Full Disclosure: I own KMP
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6 comments:

  1. I am currently analyzing ETE against KMP. Any thoughts ? the analysis on KMP was pretty informative.

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  2. Interesting post from 2008, do you have any updated information? Are you still holding this position? Are you still bullish?

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  3. Yes, I am still long Kinder Morgan.

    I haven't done any analysis of ETE vs KMP, but I might look into it.

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  4. Any thoughts on KMR, the general partner?

    Delighted to find your blog, btw!

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  5. You have amazing posts and indepth analysis like no other.

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  6. Good analysis - I also own Kinder Morgan, only about 25K worth, but I set it up so my dividends are reinvested. Got into KMP in early 2011. Low PE, Great Growth, solid company.

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