3 Reasons To Avoid Kinder Morgan
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number grows smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
This is a huge part of things.
But another huge part of this that few think of is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you achieve your retirement goals.
In recent articles I’ve shown you several stocks to avoid investing in…
- 1 Reason To Avoid AT&T And Its 7% Dividend
- 1 Reason To Avoid Autozone
- 2 Reasons To Avoid Kraft Heinz
- 1 Reason To Avoid Exxon
- 1 Reason To Avoid This 4.4% Dividend Payer
Today I want to show you another stock to avoid at all costs so you can continue growing your investment portfolio.
3 Reasons To Avoid Kinder Morgan And Its 8.3% Dividend
- It’s Got A Lot Of Debt
As of this writing Kinder Morgan Inc (KMI) is a $28.9 billion market cap oil and natural gas pipeline company. And its got a lot of debt.
Its most recent quarterly data showed it has $530 million in cash. Compared to $34.5 billion in total debt and capital leases.
Its debt is 119% higher than its market cap. And 64X or 6400% higher than its cash levels.
Having debt levels higher than a market cap is rare so let me show you what this really means…
If you take its net debt of $34 billion – debt minus cash – and then subtract this number from its market cap you’re left over with a negative equity value of $5.1 billion.
Meaning, its shares you buy on the market are worth negative $5.1 billion after accounting for its debt.
And you don’t see this when just looking at the metrics because its debt to equity ratio is 0.99.
And as a percentage of its balance sheet total liabilities make up only 55.5% of its current balance sheet.
Both are well within healthy ranges… And far lower than some of the other stocks we’ve told you to avoid due to significant debt issues which you can see below.
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This also illustrates why you must do more than just look at metrics before investing in a stock.
I want to invest in safe stocks that will be around for decades to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
Kinder Morgan has the opposite problem.
Plus, its also got so much debt that its interest coverage ratio is negative… Which means it can’t cover its current debt payments with its profits and cash flows.
How is it staying alive if it can’t cover its debt payments with profits and cash flow from operations?
This gets us to the next reason to avoid its stock.
2. Extreme Share Dilution
This is how Kinder Morgan’s stays alive… By continuing to raise cash by selling more shares on the market.
And dilution is dangerous to shareholders.
Think of dilution like a pizza.
When Kinder Morgan issues shares, the same size of pizza stays… But more people are around to eat it.
In other words, the same size of pizza stays – earnings and cash flows – to go around per share but more people are now here to eat the pizza… To own those profits.
This means the piece of pizza – profits and cash flows – get smaller and smaller over time.
In 2010 Kinder Morgan had 198 million shares outstanding… Today in 2020, it has 2.265 billion shares outstanding.
This is a 10.4X increase in the number of shares over the last decade. Or an increase of 1040% in 10 years.
Which means all else being equal that shares in Kinder Morgan are now worth 1040% less than they were 10 years ago.
Here’s how that looks on the stock chart…
From February 11th, 2011 when it was spun off/created from another Kinder Morgan entity to today KMI shares fell 58.9%.
This also leads us to reason #3 to avoid its stock.
3. Unsustainable Dividend
Its already unable to support growth with profits and cash flows from its operations. And this makes its 8.3% dividend unsustainable too.
Because in the last year it earned $0.07 per share in earnings. While it paid out $1.01 per share in dividends.
In other words, it paid out 13.4X more in dividends than it earned in the last 12 months in profits.
Healthy companies pay dividends out of earnings… Not by taking on more debt and issuing more shares.
This bad combination of things is why its shares crashed 58.9% in the last decade.
And unfortunately, it will continue because Kinder Morgan has no other way to run and pay its debt payments other than issuing more debt and more shares.
I expect Kinder Morgan to cut its dividend soon because at its current rate its unsustainable. As are its debt and share issuances its surviving on now.
For these reasons, I recommend you avoid Kinder Morgan Stock.
Click the links below to see the stocks we recommend to Depression Proof Your Portfolio and earn safe investment returns.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.