Insiders Buy Kinder Morgan Shares Hand Over Fist

Insider shareholders just keep coming back to the Kinder Morgan (NYSE:KMI) well.

Not the literal well, mind you. Kinder Morgan is a natural gas pipeline transporter — not a driller. But whatever Kinder Morgan’s relation to hydrocarbons, company insiders seem to think it’s a great business to be in.

Last month, we told you about two 100,000-each purchases of Kinder Morgan stock by company founder Richard Kinder, and a smaller purchase by the company’s CEO. Last week, we learned that insiders are still scooping up stock for their own accounts. Specifically, on July 24, a pair of Form 4 filings with the SEC described purchases of:

– 100,000 shares of Kinder Morgan stock, bought by company Chairman Richard D. Kinder on July 24 at an average purchase price of $34.97 per share. (100,000 share blocks appear to be his preferred way to invest in Kinder Morgan stock).

– and 500,000 shares bought by director Fayez Sarofim on July 22, at an even higher price — $35.33.

Together, that’s more than $21 million worth of Kinder Morgan stock bought by insiders in just three days of trading.

What does it mean to you?
Should you be following their example? A month ago, we argued the negative, pointing out that the stock was trading “at 49 times earnings, but projected to grow those earnings at just over 4% annually over the next five years,” indicating severe overvaluation in the shares.

In the short-term, at least, that appears to have been the right call. Whereas last month, insiders were paying $39 and $40 a share for Kinder Morgan stock, 30-odd days later those same shares are selling for closer to $35, about a 12% drop — and the stock still isn’t cheap.

Hit by declining revenues and net income in Q2, Kinder Morgan’s lower price per share still leaves those shares selling for about 49 times earnings. Worse, analysts polled on Yahoo! Finance now predict earnings will continue to decline, rather than grow even slowly. Instead of the 4% annual growth rate predicted just one month ago, the consensus now calls for 8% average declines in earnings over the next five years.

Long story short, Kinder Morgan shares might still be attractive to income investors looking to reap the rich 5.5% dividend yield. But value investors, hoping to see those dividends improved by a rising stock price… might have to wait a long time to see that happen.


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