We admittedly are shocked that Kinder Morgan Inc. slashed its quarterly dividend by 75% on Tuesday, and according to the WSJ, “an unprecedented step for the massive energy company that just one year ago was promising unfettered growth. ”
The company said it would cut the dividend to a level of 12.5 cents a share per quarter–or 50 cents annually–down from its prior level of 51 cents each quarter. Kinder Morgan said it had to take action to maintain its investment-grade debt rating.
At that yield and its current aftermarket price, KMI is only yielding 3.5-4% less enticing than safer regulated utility Dominion Resources (D) 3.92% or Duke Power (DUK) 4.8%
We don’t agree with this action as the market would have much preferred to postpone/slash capital investments but apparently they were not able to do this or they would have done so like all the other energy companies. If the opposite is true, then the Captain of the Ship is going to run it off the side of the earth. Richard Kinder and management must think the earth is flat. They have been furiously buying their stock only days before cutting the dividend 75%. They can only believe that oil and gas are going to rebound sharply and they will grow the dividend back to new heights. We don’t know the answer to this and we don’t like either of the possibilities we posed.
We have sold most of our Kinder stock now, licking our wounds. As I have said before we make many mistakes but none we can’t recover from. Kinder was a fairly small position (3%) although our largest in the MLP space. Several MLPs rallied today. It will be interesting to see if they can hold those gains after today. My guess is they cannot.