Thursday, October 22, 2015

"Kinder Morgan's Mysterious Ways" (KMI)

Following up on this morning's "Kinder Morgan Warns On Dividend Growth, Investors Saddened, Stock Drops 7% (KMI)" the stock has recovered a bit, $29.96 last, down 4.65%.
From BloombergView:
For the stock market, Richard Kinder just doesn’t seem like ideal boyfriend material. Not only does he play the field, when you try to talk to him about it, he shuts down. 
The company he chairs, Kinder Morgan, surprised investors on Wednesday evening not merely by missing earnings estimates and scaling back dividend growth targets, but also announcing plans for a new capital infusion. 
Actually, "plans" is probably too generous. Rather, the company said that with its cost of equity now so high -- the dividend yield having risen to 6.5 percent -- it had "identified alternative funding sources" to meet its needs through the first half of 2016. Questioned by analysts as to what those sources were, Kinder demurred, citing regulatory restrictions. The stock fell 5 percent Thursday morning. 
Kinder Morgan's relationship with public markets has shifted back and forth over time. It was co-founded in the late 1990s, when web-obsessed investors left infrastructure assets going cheap. The company was taken private in 2006, re-listed in 2011, and then consolidated into a regular company last year, folding in several master limited partnerships in the process. From Kinder Morgan’s perspective, if it isn’t feeling much love from the public market, then it will simply seek the arms -- or alms -- of another. 
It's all just guesswork at this point, but one possible candidate for funding is convertible preferred stock. That would carry a lower cost than the current dividend yield. Infrastructure funds or pension pools wary of anything energy-related might be willing to take a coupon of, say, 4 or 5 percent and the promise of gains on the stock down the road. 
What is clear is that Kinder Morgan needs fresh capital. Debt at the end of September was 5.8 times trailing Ebitda. Though it's no longer an MLP, the company’s equity story still hinges on big payouts and the promise of growth. So amid Wednesday’s cloak-and-daggery, Kinder Morgan reaffirmed this year’s dividend target of $2 per share and still aims for between 6 and 10 percent growth next year....MORE

And it is that ongoing need for capital that is at the heart of the problem.