DKL

Kinder Morgan’s Dividend Is Much Healthier These Days

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Image: Kinder Morgan’s shares have done quite well thanks to improved free cash flow performance. By Brian Nelson, CFA On October 16, pipeline giant Kinder Morgan (KMI) reported weaker than expected third quarter results, with both revenue and non-GAAP earnings per share coming in lower than what the Street was looking for. Adjusted EBITDA expanded 2% in the third quarter on a year-over-year basis, while net income attributable to KMI came in at $625 million, higher than the $532 million mark it posted in the year-ago quarter. Third quarter earnings per share was up 17% compared to the same period last year, but adjusted earnings per share of $0.25 and distributable cash flow of $0.49 per share were flat on … Read more

Kinder Morgan Now Covers Cash Dividends with Traditional Free Cash Flow

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By Brian Nelson, CFA On October 18, Kinder Morgan (KMI) reported third-quarter results that came in lower than expectations, but we’ve taken note of the company’s improved free cash flow generation that now runs in excess of its cash dividends paid, a huge change from a decade ago, where capital spending and cash dividends paid far outweighed its operating cash flow capacity. The company’s dividend stands at $1.13 per share on an annualized basis, and Kinder Morgan now has a forward estimated dividend yield of ~6.7%, which is quite attractive. Shares are trading meaningfully below our estimate of their intrinsic value, too, and we’re warming up to the company’s financials. Its net debt position likely precludes it from being added … Read more

We Like NextEra Energy’s ESG Focus But Capital Market Conditions Now Showing Cracks

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Image Source: NextEra Energy By Brian Nelson, CFA We’ve written in the past about NextEra Energy (NEE), and our latest note can be found here. The company remains one of our favorite utilities, but mostly because of its renewables energy exposure as it relates to ESG considerations. When it comes to utilities, more generally, however, we tend to take a pass on almost all of them given the capital intensity involved in their operations and their interest-rate sensitivity, especially now in an environment where interest rates are returning to “normal” levels in the mid-single-digits. The forward estimated dividend yield on the Utilities Select Sector SPDR ETF (XLU) stands at ~3.8% at the time of this writing, and if investors are … Read more

Magellan Midstream Soars on Takeout Deal

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Image: Magellan Midstream Partners soars on a takeout offer from ONEOK, Inc. By Brian Nelson, CFA We’re as happy as we can be to see a midstream energy master limited partnership (MLP) takeout. On Sunday, May 14, it was publicly announced that Magellan Midstream (MMP) would be bought by ONEOK, Inc. (OKE) in a cash and stock deal worth ~$18.8 billion including assumed debt. According to the deal terms, the transaction would give $25 per share in cash and 0.667 common share of ONEOK for each MMP common unit. Though many are questioning the rationale behind the deal, energy infrastructure rollups continue to reduce the number of energy MLPs trading on public markets, as we predicted years ago. Units of … Read more

Energy Pipelines: What a Difference A Few Years Have Made!

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Image: Midstream energy companies have significantly improved their free cash coverage of their payouts in recent years. We’ve taken note. Source: Relevant 10-Q filings. By Brian Nelson, CFA As of our last check, no longer are the vast majority of energy pipeline players not covering their dividends/distributions with traditional free cash flow, as measured by cash flow from operations less all capital spending. Said another way, free cash flow after dividends, distributions is positive for a great many energy pipeline players these days. We’re pleased by the developments across midstream, and we expect to make some moves in the simulated newsletter portfolios to potentially add the Alerian MLP (AMLP) ETF to the simulated newsletter portfolios as a result. This is … Read more

Must Watch: MPT Failures and High Yield Dividend Breakdown Spiral!

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Did you know that Valuentum’s income ideas are holding up great this year, far better than the traditional 60/40 stock/bond portfolio and what some call “sucker” yields, those companies with 8% dividend yields or higher? — The 60/40 stock/bond portfolio is down ~20% so far in 2022 and some high-yield stocks like mortgage REITs are down nearly 40%, but Valuentum’s income-oriented simulated newsletter portfolios, the Dividend Growth Newsletter portfolio and High Yield Dividend Newsletter portfolio, are estimated to be down just 8.4% and just 10.1%, respectively, in 2022. — Preventing huge drawdowns in retirement is the name of the game, and those pursuing modern portfolio theory (MPT) have been caught by surprise, while income investors reaching for 8%+ yields may have just experienced permanent … Read more

Chesapeake Energy’s Pain Indicates Nothing “Safe” About Energy MLP Distributions

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Summary There is nothing “safe” in the stock market, and given the track record of the distributions of pipeline MLPs, there is nothing “safe” about pipeline MLP distributions. The MLP business model continues to be phased out, a trend that we anticipated when we made our bearish call on the group in June 2015. Chesapeake Energy’s pain is a yet another reminder of the pipeline MLP group’s exposure to energy resource pricing through the health (or rather ill-health) of its customer base. We continue to encourage pipeline operators to disclose free cash flow (cash flow from operations less all gross capital spending) prominently in press releases, alongside other industry-specific metrics. Investors of Chesapeake could get completely wiped out in a … Read more

Tallgrass Energy’s Growth Runway Shorter Than Expected

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Image Source: Tallgrass Energy LP – IR Presentation By Callum Turcan Valuentum’s High Yield Dividend Newsletter portfolio parted ways with Tallgrass Energy LP (TGE) on August 1, as we wanted to reduce our exposure to the midstream space. We don’t like TGE as much as we once did and think it’s best to move on to better opportunities. Please note Blackstone Group Inc (BX), through affiliates of Blackstone Infrastructure Partners, closed its purchase of Tallgrass’ general partner in March 2019 which included those parties acquiring a 44% economic interest in Tallgrass. In 2018, Tallgrass reorganized as a C-Corp which we were very supportive of. Additionally, the midstream company has been very free cash flow positive historically (when defined as net … Read more

Dividend Increases/Decreases for the Week Ending January 26

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Below we provide a list of firms that raised/lowered their dividends during the week ending January 26. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week 3M (MMM): now $1.36 per share quarterly dividend, was $1.17. AGCO (AGCO): now $0.15 per share quarterly dividend, was $0.14. Air Products and Chemicals (APD): now $1.10 per share quarterly dividend, was $0.95. Alaska Air (ALK): now $0.32 per share quarterly dividend, was $0.30. ALLETE (ALE): now $0.56 per share quarterly dividend, was $0.535. Alliance Data Systems (ADS): now $0.57 per share quarterly dividend, was $0.52. … Read more

MLP Speak: A Critique of Distributable Cash Flow

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–> Handout 1: Pitfalls of Distribution Yield Analysis (pdf) –> Handout 2: Linking P/DCF to Enterprise Free Cash Flow Valuation (pdf) Let’s talk about a controversial metric that is used in master limited partnership (MLP) reporting. Just how useful is it, and should it be allowed? By Brian Nelson, CFA It’s been a few years since the fallout in the prices of most master limited partnerships (AMLP), but to me, it still feels like yesterday. We continue to have many concerns about the longevity of the business models of MLPs, and we maintain our view that the operating structure will be challenged over the long haul. New equity and debt funding (issuance) continues to, in part, fuel the distributions of most MLPs, … Read more