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Kinder Morgan (NYSE: KMI) CEO Richard Kinder bought $27 million of his company’s stock on Dec. 18 when shares traded at $33.
Less than one month later, the company announced a healthy 11% increase of its quarterly dividend payment.
The combination of insider buying and a growing dividend is great news for Kinder Morgan investors.
Despite being No. 39 on Forbes’ list of the richest Americans, Richard Kinder isn’t well known outside of Texas. He was buddies with Enron founder Ken Lay and served as Enron President from 1990 to1996. But unlike Lay, Kinder was able to avoid prison and built a real and profitable oil and gas company. Along the way, he’s grown his net worth to $10.2 billion.
Kinder Morgan owns and operates oil and gas pipelines through its subsidiaries. It is a managing partner that controls Kinder Morgan Energy Partners (NYSE: KMP), El Paso Pipeline Partners (NYSE: EPB) and Kinder Morgan Management (NYSE: KMR) — three companies that are involved in the distribution and processing of oil and natural gas.
Kinder Morgan’s services are essential to companies drilling and fracking for oil and natural gas. These companies may be able to locate and extract oil from the ground but without Kinder Morgan they wouldn’t be able to efficiently transport the oil to refineries and other processing facilities.
One of Kinder Morgan’s largest holdings is a 111-mile pipeline running through the heart of the Eagle Ford Shale region. The pipeline carries natural gas from the region’s extraction sites to processing facilities, which are also owned by Kinder Morgan.
Such full-service pipeline operations are what make Kinder Morgan the logical choice for large natural gas producers operating in the area, including Chesapeake Energy (NYSE: CHK) and Anadarko (NYSE: APC).
And thanks to the significant cash flow generated by its subsidiaries, Kinder Morgan pays a healthy, reliable and growing dividend. Over the last three years, the dividend has surged 192%.
With a current yield of 4.9%, Kinder Morgan is a high-yield energy company. Exxon Mobil (NYSE: XOM), for example, only offers its shareholders a 2.8% yield.
All of this may sound like great news. But the stock took a hit in early December after disappointing guidance from one of its subsidiaries. It was at those depressed levels that the company’s CEO, Richard Kinder, invested $27 million in Kinder Morgan stock. While shares enjoyed a 10% bump on the news, the price has since fallen back to pre-announcement levels.
Kinder Morgan’s profitability has little to do with gas prices. The company offers “midstream” services, which means that Kinder Morgan isn’t involved in extracting the resource and isn’t selling it to the end consumer. Therefore, Kinder Morgan’s network of pipelines and processing facilities is profitable anytime that oil and gas are flowing through them.
Based on steady demand and the long-term commitments Kinder Morgan has secured from large oil and natural gas producers, the company’s business model is rock solid.
Despite being a dividend champion, Exxon Mobil’s 2.8% dividend seems paltry next to Kinder Morgan’s 4.9% yield. And with a proven track record for dividend growth, Kinder Morgan is poised to make investors a lot of money.
The median of analyst predictions suggests that Kinder Morgan shares will rise by over 15% this year. Between that share appreciation and the 5% dividend, your annual return could be 20%. In an environment where major markets are expected to be flat, that is tremendous performance. Still, the stock is 22% below its 52-week high and has the potential to return to those levels.
Investors search for opportunities to own dividend growth and undervalued stocks. With Kinder Morgan, you can own both at a price that was attractive to the person who should know best, its CEO.
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