If you are watching your Kinder Morgan partnership stock carefully (and that is the same with KMI or KMR) you may have noticed that KMP suffered a large drop recently. KMI even dropped almost 6% last week.
Should you be worried and dump the stocks?
No, that would be a bad move. First answer yourself a single question: Why have you invested in KMP, KMI or KMR at the first place? Are those reasons still valid?
I invested because of the dividend income I wanted from the stock (to be exact I wanted the nice distribution KMP pays to its share holders). Is that reason still valid? Yes it is. The rate even raised up to 6.60% as of today’s writing! I actually want this stock now more than before!
So why the stock got hit and the price is falling?
The reason is a report issued on September 10 by an analyst Kevin Kaiser of a research firm Hedgeye who was arguing that KMI (the general partner of KMP) is spending less on its capex (capital expenditure) and thus inflating its distributable cash flow. In his opinion that makes the company a house of cards and avoidable for investing.
I am not buying this at all. I have never read a bigger nonsense when comparing what other MLPs do. If you want to read more about the report and how other investors react to it go to an article: “It Isn’t Kinder Morgan That’s a House of Cards” by Jim Mueller at Motley Fool or “Kinder Morgan Energy Partners LP: Not A House Of Cards” by Roger S. Conrad at Seeking Alpha.
I believe the reaction of investors to the report is another proof how irrational markets are (actually people investing there) and how savvy investors can make money taking advantage of it. This is a type of news which create a great opportunity for any dividend investor.
I will be placing my contingency order shortly to buy more shares. That means that I will place a trailing order, which will trail the stock price as it goes down, and execute only when the price reverses into upward.