Stocks chosen for our portfolio are rewarded for superior rates of dividend growth and revenue growth, as well as for high yields and low payout ratios. Operating cash flow over the past 12 months must be positive, and sufficient to cover the dividend, notes John Dobosz, editor of Forbes Dividend Investor.
They also trade at discounts to multiple five-year average valuation measures that include price to sales (P/S), price to book value (P/BV), price to current year expected earnings (P/E), price to cash flow per share (P/CF), and enterprise value/EBITDA.
Founded in 2006 by Richard D. Kinder and William V. Morgan, Houston, Tex.-based Kinder Morgan (KMI) — the latest addition to our model portfolio — operates more than 70,000 miles of pipelines that transport natural gas, crude oil, carbon dioxide, gasoline, and other refined products and chemicals.
Its also handles bulk materials like ethanol, coal, petroleum coke and steel. The Canadian segment operates the Trans Mountain pipeline system.
This system transports crude oil and refined petroleum products from Edmonton, Alberta to marketing terminals and refineries in British Columbia and Washington state. Kinder Morgan is also the largest handler of ethanol.
The risk of owning Kinder Morgan is a reduction in oil and gas production that reduces demand for KMI’s pipelines and storage facilities.
The company just recently reported second quarter results, with adjusted earnings before interest taxes depreciation and amortization of $1.57 billion, compared to the $1.64 billion consensus estimate. The bright spots: Petroleum product demand was higher in May and June, and terminal leasing exceeded expectations.
The stock trades at deep discounts to five-year average valuations, and insiders, including Chairman Richard Kinder, have been big buyers of the stock this year.
