Once upon a time in a land not that far away, there was man named Richard who worked for a company known as Enron. Now Enron was a big company that decided it was no longer going to be a simple pipeline company. Richard wanted to be king of Enron and a great battle ensued. When it was over, poor Richard lost the battle for the big corporate office. But Richard did not go away empty handed. He agreed to leave in peace and even offered to buy all the pipeline assets.
Well lo and behold, Richard flourished as his pipelines (and stock price) grew seven-fold. And there was great celebration in the land of shareholders. Meanwhile Enron met with the great evil bear market and was attracted by smart accountants from the great city in the east. They figured out that there was nothing of value in Enron. And the market punished shareholders as the stock went to zero. And there was a wailing and gnashing of teeth!! But for shareholders in the land of Kinder, they (so far) lived happily ever after.
Such is the story of Kinder and it’s no fairy tale. Richard Kinder has been one of the most successful investors, though he does not get the attention of Warren Buffett. The original Kinder Morgan stock went from $7 to $110 when it disappeared in a buyout in 2007. The company has come back as a public company in 2011. While we have the common Kinder Morgan (KMI), we also have Kinder Morgan MLP (KMP) whose chart above has been nothing short of spectacular considering not only do you have the capital gain but the nice 5-plus percent payout.
The new Kinder Morgan common has done quite well after a slow start. The yield is lower here as the stock pays $1.26 on an annual basis. Still its logical to assume that what is good for one will be good for the other. At this point which should you own? Should you own both or perhaps maybe it might be time to walk away for a while and wait for a lower entry point?
The answer is not a simple yes or no. The prospects for both companies appears bright going forward as KMI will be acquiring assets and putting them in KMP, which is pretty much what has been going on all along. Headwinds among other things include market perception ofassets, interest rates, and the overall market. There is also the potential perceived bubble that has developed in anything that pays a dividend these days. If you are adverse to chewing through K-1s come tax time then you can go the route of the common. Of course, there is no law that says you could not own both. Kinder Morgan LP has led the bull run in Master Limited Partnerships, which has seen its index more than double off the December 2008 low. If the bull market ends in one day, it could shift outperfomance to the common. In the long term, the issue boils down to whether one wants to put his money with Prince Richard. If past is prologue it would be a pretty solid bet no matter which way you play it.
Disclosure: In the interests of disclosure, Joseph Cioffi is long shares in Kinder Morgan common. He has no position in Kinder Morgan LP (KMP) at this time.