Kinder Morgan Inc (NYSE:KMI) and its shareholders are enduring another rough day, as shares of the energy infrastructure giant are down by another 6.75% this morning, pushing its losses this week to 25%. Moody’s downgraded the company’s debt rating to ‘Negative’ from ‘Neutral’ on Tuesday, after KMI announced that it was upping its stake in struggling Natural Gas Pipeline Company of America, which it operates, to 50% from 20%. Kinder Morgan was also hit with the news that it will be on the hook for $171 million in damages owed to investors of an MLP affiliate of El Paso Corp, the latter of which KMI acquired in 2014. That results from a ruling that found El Paso overcharged the MLP (and by extension its investors) when it sold two subsidiaries to it in 2011.
Those developments earlier in the week led to Argus also downgrading Kinder Morgan to ‘Hold’ from ‘Buy’ yesterday, with the research firm raising concerns about KMI’s dividend, among other things, suggesting liquidity concerns will likely lead to the dividend being cut in the future. Kinder Morgan’s most recent dividend was a $0.51 quarterly payment on October 29, which now represents a dividend yield of over 11% at the stock’s depressed levels. Kinder Morgan’s dividend yield stood at less than 5% a year ago, before the stock cratered by 57%.
Despite the challenging environment for Kinder Morgan, investors tracked by Insider Monkey were showing optimism for the stock at its reduced third quarter price. Kinder Morgan was in 72 hedge funds’ portfolios at the end of September. That was up from 64 hedge funds in our database with Kinder Morgan holdings at the end of June. At the end of this article we will also compare Kinder Morgan to companies such as Abbott Laboratories (NYSE:ABT), ConocoPhillips (NYSE:COP), and Danaher Corporation (NYSE:DHR) to see how investors are also trading similar-sized companies.
Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by over 53 percentage points (read more details here).
Keeping this in mind, we’re going to analyze the latest hedge fund activity in Kinder Morgan Inc (NYSE:KMI).