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

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

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!