Why Kinder Morgan Cutting Its Dividend Is A Good Thing

TL;DR

Kinder Morgan's stock is currently cheap and volatile, with a high dividend yield of 12%. While they face uncertainty and debt concerns, long-term investors may find the company a worthwhile investment opportunity.

Transcript

you can follow us on twitter app market foolery is our twitter handle you can also email us market foolery at fool.com as our email address question from christian kelly who writes I know Kinder Morgan is really volatile right now but is it still a worthwhile company to invest in it looks cheap but I don't know and this question came in a couple of... Read More

Key Insights

• ⏳ Kinder Morgan's stock price is currently at or near all-time lows, making it an appealing investment opportunity.
• ✋ The company's dividend yield is astronomically high at 12%, but potential dividend cuts are a cause for concern.
• ❓ Moody's downgrade of Kinder Morgan's outlook highlights worries about future recapitalization and debt challenges.
• 🧑‍⚕️ The acquisition of a debt-laden company increases the uncertainty surrounding Kinder Morgan's financial health.
• ☠️ Kinder Morgan's decision to convert from an MLP structure has reduced its exposure to higher interest rates.
• 😘 Long-term investors may view the company's low stock price as an opportunity, albeit with potential further decline due to oil prices.
• 🐕‍🦺 Multiple investment services recommend Kinder Morgan as a potentially undervalued stock.

Questions & Answers

Q: Is Kinder Morgan still a worthwhile company to invest in, despite its volatility?

Although Kinder Morgan is currently volatile, it presents a potential investment opportunity. The stock is cheap, yielding a high dividend of 12%, making it attractive for long-term investors.

Q: Why is Moody's concerned about Kinder Morgan's outlook?

Moody's downgraded Kinder Morgan's outlook due to the company's acquisition of a debt-laden natural gas pipeline company. This increases concerns about future recapitalization and potential loss of investment grade rating.

Q: How does Kinder Morgan's dividend cut possibility affect investor sentiment?

It is generally seen as a red flag when a company announces a dividend cut. While it may be a sensible move in the long run, it is likely to trigger a sell-off, as investors prefer stable dividend payments.

Q: Why is cutting the dividend the best way for Kinder Morgan to fund capex?

With low stock prices and potential loss of investment grade rating, using equity or debt for capital expenditure is challenging. Cutting the dividend allows the company to generate additional capital, although it may negatively impact investor sentiment.

Summary & Key Takeaways

• Kinder Morgan's stock price has dropped to near all-time lows, making it an attractive investment option for long-term investors.

• The company's dividend yield is currently at a high of 12%, but there are concerns about potential dividend cuts.

• Moody's downgraded Kinder Morgan's outlook due to increased debt from an acquisition, which could lead to further challenges in the future.