Kinder Morgan Inc (KMI)’s Payout Coverage Will Still Be Thin After Reorganization for Conservative Income Investors: Josh Peters

Ever since Kinder Morgan Inc (NYSE:KMI) has announced its reorganization of buying three of its associated companies. The Street has been divided upon whether this is good for the shareholders of the respective companies or not.  Kinder Morgan Inc (NYSE:KMI)’s shareholders had a good ride while the company continued to give them a good payout, but will the going be as good after the reorganization? Josh Peters, editor of Morningstar DividendInvestor, answered that question recently in a video on Yahoo! Finance.

Kinder Morgan Inc (NYSE:KMI)

“Well, part of the way Kinder structured its organization in the past is, you have a general partner Kinder Morgan Inc (NYSE:KMI) at the top of the heap, it in turn is collecting incentive distributions from several subsidiary partnerships Kinder Morgan Energy Partners LP (NYSE:KMP) and El Paso Pipeline Partners, L.P. (NYSE:EPB). And, effectively, with each new unit that these two partnership issues in order to fund their growth, that distribution is being paid to the new unit holder and an additional distribution almost as large is being upstream back to Kinder Morgan Inc (NYSE:KMI) [...],” Peters said.

Kinder Morgan Inc (NYSE:KMI) has been one of the pioneers of the Master Limited Partnership (MLP) financial structure, it helped popularize this structure way back in the 90′s. A host of companies related to the oil and gas business saw the benefit of the MLP structure over the years and adopted it. The MLP structure basically allows companies to pass on their profits directly to the shareholders without paying corporate taxes on them.

Peters feels that although this arrangement was very lucrative for the general partners in the company, it proved very cumbersome for many of the subsidiary companies to grow under this arrangement. He believes that the biggest benefit of this reorganization would be that the additional profit distribution can be curtailed and the cost of capital for the companies to grow would be significantly reduced. According to Peters, who will end up being the loser in the transaction is a ‘matter of opinion’, but his calculations show that the income Kinder Morgan Energy Partners LP (NYSE:KMP) and El Paso Pipeline Partners, L.P. (NYSE:EPB) used to receive would drop following this reorganization.

Disclosure: None

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!