Tags: Kinder | Morgan | energy | KMI

Kinder Morgan Buys Energy Growth

By    |   Monday, 07 Nov 2011 01:03 PM

Investors seeking to gain a stream of energy related income are likely consider Kinder Morgan (KMI). The question becomes, which Kinder Morgan? Each part of this highly structured firm offers its own flavor of income and things are changing as the firm moves to buy growth in the energy sector.

Kinder Morgan Inc. owns the general partnership interest in Kinder Morgan Energy Partners LP (KMP), the operating part of the Kinder Morgan family of stocks. Also included in the mix is Kinder Morgan Management (KMR). On top of all that, Kinder Morgan, Inc. is in the process of buying El Paso Corporation (EP).

Kinder Morgan is one of the largest energy pipeline and storage companies in the United States. KMI generates 98 percent of its revenues from the general and limited partnership units it owns of KMP and KMR. Kinder Morgan Inc. initially paid a 29 cents quarterly dividend, but increased the rate to 30 cents in the third quarter of 2010.

KMI has a current dividend yield of 4 percent compared to almost 6 percent for KMP. If the limited partnership distributions continue to increase, the general partnership dividend should grow at an even faster rate.

Big energy

The acquisition of El Paso Corporation by Kinder Morgan Inc. will make the combined Kinder Morgan organization the largest pipeline and storage company in the country. With a near $100 billion market cap, it will be the fifth-largest energy company in the United States.

The purchase will be a combination of cash, KMI shares and warrants and assumption of KMP debt for a total price of $38 billion. The deal must be approved by both the El Paso and KMI shareholders and is expected to be completed in the second quarter of 2012.

After the deal goes through, KMI will sell some of the El Paso assets for cash and then start dropping down the remaining energy assets into KMP or El Paso Pipeline Partners (EPB). Kinder Morgan Inc. will retain the general partnership assets of both LP companies.

The drop down program is expected to increase the KMP growth rate to 7 percent from 5 per cent and the growth of EPB to 9 percent per year.

The company next reports on Jan. 19.

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Investors seeking to gain a stream of energy related income are likely consider Kinder Morgan (KMI). The question becomes, which Kinder Morgan? Each part of this highly structured firm offers its own flavor of income and things are changing as the firm moves to buy growth...
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2011-03-07
Monday, 07 Nov 2011 01:03 PM
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