Kinder Morgan Inc (KMI) has taken an absolute beating this month. The reason? El Paso Pipeline Partners (EPB), a sister company, posted unimpressive earnings and gave guidance on the dividend that was shy of what Wall Street expected.
El Paso’s performance matters to Kinder Morgan Inc. for two reasons. First, Kinder Morgan Inc. owns over 40% of El Paso’s limited partner units, so slower distribution growth for El Paso means less flowing through to Kinder Morgan Inc. And second, slower distribution growth means less in the way of incentive distribution rights.
What does this mean for Kinder Morgan Inc.? The company will see dividend growth of “only” 8% in 2014.
So, where do we go from here? Is Kinder Morgan Inc. still a buy?
Absolutely. After the recent sell-off, Kinder Morgan yields 4.6%, making it one of the highest-yielding large-cap stocks in America. And I might add that 8% dividend growth is nothing to turn your nose at, particularly when you’re starting at such a high yield.
Furthermore, I like to watch company insiders to see how they are reacting to current events. Let’s take a look at some of the recent insider buying activity.
For more information see: gurufocus.com
James Street, a vice president, has accumulated over $130,000 in KMI stock since September, and Sarofim Fayez, a director, made a large purchase of about $15,000 in September. But the real story is Richard Kinder, who has spent over $35 million of his own money buying company stock since June. There is only one reason why he would buy shares of his own stock: he considers it grossly undervalued at current prices.
ACTION TO TAKE
Buy shares of Kinder Morgan Inc. Plan to hold for 12-18 months or for 50%-75% gains. Use a 15% trailing stop.
Disclosures: Charles Sizemore is long KMI.
