A Stock That Can Fatten Your Wallet
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When it comes to picking dividend stocks, I prefer companies that have a good growth potential, along with good financials and fundamentals. Using this method, our pick eventually turns out to be a dividend growth stock. The company that came up on my radar this time was Kinder Morgan Energy Partners (NYSE: KMP) which is the largest owner and operator of pipelines in the US. The pipelines carry refined petroleum products, crude oil, natural gas and carbon dioxide, servicing a range of markets. The company owns more than 29,000 miles of pipelines with 180 terminals throughout the country, and if logistics weren’t enough, the company additionally is involved in the production of carbon dioxide.
A Fair Play?
The company operates on a fee based structure, which is not directly dependent on the prices of commodities but instead on their demand in the industry. The fee based structure eliminates any risk posed by the volatile prices of commodities, and instead of relying on a single commodity for its bread and butter, the diverse range of products that it transports, significantly reduces the company’s risk.
The prices of natural gas have fallen, and so has its demand. Crude on the other hand is gaining ground, by trading near the $100 mark. The company is directly affected by the demand of the commodities, and any good news from the Eurozone eventually helps the profitability of Kinder Morgan Partners. Overall the company’s profitability is dependent on the industrial growth of the country, and for the investors bullish on the growth prospects of the US, especially after the announcements of the stimulus package and QE3, Kinder Morgan would be a fair play.
Bullish Intentions
Kinder Morgan Partners recently acquired a 100% stake in Tennessee Gas Pipeline, which has a spread of around 14,000 miles of pipelines. Alongside the Kinder Morgan also purchased a 50% stake in El Paso Natural Gas Pipeline, which has pipelines spread in excess of 10,000 miles. The acquisitions indicate that the Kinder Morgan is bullish on the future of natural gas, and that it considers the current downfall in demand to be only temporary. The company believes that the full-fledged financial benefits of the acquisitions are likely to reflect on the books of Kinder Morgan, after 2012.
The Numbers Game
The quarterly revenues of the company dropped 8.7%, and the slump in demand of commodities are to be blamed for it. The EPS however increased 23% surging to $0.37 compared to $0.3 in last year’s quarter. The EBDA rose 18% and the distributable cash flow surged 13%, both the figures being in comparison to the same period last year. The end deduction from the results was the topline took a hit, but the fundamentals remained intact. Analysts expect that the investors could see a joy ride once there is some good news from Europe.
Comparative Metrics
Kinder Morgan faces competition from William Partners (NYSE: WPZ) and Enterprise Product Partners (NYSE: EPD). Let’s take a look at their financial metrics.
|
Company |
Net Profit Margin |
Dividend Yield |
EPS growth next yr. |
Performance this Yr. |
|
Kinder Morgan |
20.43% |
5.93% |
10.43% |
26.08% |
|
William Partners |
18.88% |
6.06% |
4.07% |
0.71% |
|
Enterprise Product |
5.52% |
4.67% |
2.79% |
36.79% |
When we take a look at these metrics, Kinder Morgan has the highest net profit, along with the second highest dividend yield. The stock has given a solid performance this year and the analysts expect the EPS to grow at the fastest pace amongst its peers. These metrics tell only one story that is to go for Kinder Morgan.
The Foolish Conclusion
Kinder Morgan is operating in a thriving industry, which offers the company a good room to grow. The company has been aggressive in its approach, and this coupled with good numbers and a healthy dividend, makes us believe that the stock is hard to miss. We have a foolish buy rating on the stock.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Enterprise Products Partners L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
