When Kinder Morgan Inc. (US:KMI) has decided to bring its master limited partnership (MLP) back to the company and trade as one stock in 2014, analysts welcomed.
Did not work this way. Because changing the structure will become final, KMI has lost more than 60% of its value, despite a constant stream of dividends, which currently yields 3.26%.
Meanwhile, enterprise products partners L. P. (Ticker NYSE:EPD) was among those who kept the MLP structure passed through this period, and while he did not prosper, the stock is down only 20%. The dividend yield is now around 7%.
But it’s all about corporate structure, or something else is going on?
The Story Structure
It helps if you understand the difference between corporate structure, like Kinder Morgan and the MLP structure of the company’s products.
And MLP is just as it sounds. You’re partner. This means that the proceeds go directly to you, but also losses. It also means that you must submit additional documentation to the IRS each year, namely complex K-1 Form.
In the corporate structure, like Kinder Morgan, the Corporation can hold the losses, and choose to distribute profits or not. KMI initially chose this route to have control of the funds. But when things go wrong, as they did in 2015, it is little protection for shareholders. In 2015, the midst of the collapse in oil prices, KMI to cut its dividend by 75%, and the shares have not recovered. EPD to reduce its dividend to KMI, but since then growth dividends of 42.5 cents a share in the latest quarter.
Because MLPs must pay 90% of their income as dividends, they must also Fund capital projects with debt, which increases their risk. EPD, for example, has more debt than capital on its books, and there is nothing unusual. The continuation of the investment KMI in its network, means that it also has a lot of debt as equity continue to fall, even when he tried to reduce the debt by $6 billion in 2015.
KMI remains a need for
One reason why You don’t see big headlines about “bomb trains” in 2018 for falling of demand for oil in the middle of the decade moved to raw cheaper, safer pipelines that also condition (heating) of the product for the extraction of volatile, valuable liquids. KMI is the largest owner of the pipeline around. And this is called the “midstream company”, because its objects between development fields and refineries. Liquids can also be used to make crushed bitumen, the “oil Sands” of Alberta, transported by pipeline.
In addition to running crude oil and natural gas liquids, KMI also the route of the pipelines and product lines. They provide refined gasoline from refineries to terminals, from which trucks take it to the station.
Now, KMI is all over the news again because he wants to expand one of its raw lines of “TRANS Mountain” line that runs from the oil Sands of alberta with refineries and terminal in British Columbia. Albert wants a new line, but in British Columbia there, and KMI has suspended work until the country decides what to do, exerting political pressure.
Assuming that the work is resumed, KMI shareholders will benefit with an increase in the volume of production and use of liquids for use in transport.
The bottom line for Kinder Morgan
Once it gets past the political difficulties that Kinder Morgan should have a stable cash flow. Its absence of profitability mainly due to low prices for natural gas, which was running below $3 per thousand cubic feet within three years.
The hope that export terminals, as the company cheniere energy, Inc. (NYSEAMERICAN:LNG) will absorb the excess supply and allow the price rebound. If this happens, Kinder Morgan will benefit more than most, and the stock will recover.
Company Dana Blankenhorn-financial and technical journalist. He is the author of historical mystery romance the reluctant detective, time travel, is now available on Amazon Kindle store. Write to him at firstname.lastname@example.org or follow him on Twitter @danablankenhorn. At the time of this writing, he owned shares of the companies mentioned in this story.