Last Sunday, Kinder Morgan (KMI) announced it was going to consolidate all of its holdings (KMP, KMR, EPB). As an owner of KMP, I decided to sell after a nice one-day pop of 17% and total gain of 31% (9% annualized, not including dividends). Originally I was going to buy KMI, but a little due diligence revealed some problems:
KMI: $42B market cap, $37B debt minus cash, $5B operating cash flow
KMP: $45B market cap, $22B debt minus cash, $4B operating cash flow
KMR: $13B market cap, (insufficient information)
EPB: $10B market cap, $5B debt minus cash, $1B operating cash flow
Combined KMI: $110B market cap, $64B debt minus cash, $10B operating cash flow
Those fundamentals are, in a word, terrible. (This guy agrees with me.) Comparables XOM, COP, EPD, and WMB each have better debt/equity and debt/operating cash flow ratios.
So instead, I took my proceeds and bought 2 other (presumably better) dividend stocks...Microsoft (MSFT), which I've previously covered here (and Ballmer's gone!); and a new holding...
Costco (COST)
Positives:
$7B cash vs. $5B debt.
Positive cash flows ($4B operating, $1B free).
Very safe 1.2% dividend yield.
Warren Buffett likes it.
Negatives:
Thin margins (2% profit, 3% operating).
Lukewarm revenue (7%) and earnings (3%) growth.
