Kinder Morgan Merger to Create Dividend Powerhouse

kinder-morganIf you’re an income investor or an energy investor then you’re probably already familiar with the Kinder Morgan family of companies.
This group of companies serves as the backbone of a huge portion of the American energy industry, operating a massive network of pipelines and other energy infrastructure.
Soon, a Kinder Morgan merger will bring all four companies together under one roof.
Kinder Morgan Inc (NYSE: KMI) announced Sunday that it will acquire Kinder Morgan Management (NYSE: KMR), Kinder Morgan Energy Partners (NYSE: KMP) and El Paso Pipeline Partners (NYSE: EPB).
The entire family of stocks surged higher yesterday and the rating agency Fitch announced that it has put Kinder Morgan on watch for a positive credit rating increase. It’s safe to say that the market has reacted positively to the news.
Kinder Morgan Management Company (KMR) is up around 24% yesterday.
The Kinder Morgan MLP’s are also up. Kinder Morgan Energy Partners (KMP) closed up over 17% while El Paso Pipeline Partners (EPB) closed up over 20%.
Even KMI, the parent company and acquirer, closed higher, rising 9%. Clearly the market is in favor of the consolidation offered by the Kinder Morgan merger and thinks it will enable to company to generate even more income for shareholders.
Back in February I wrote about Kinder Morgan’s founder and CEO Richard Kinder.
In December he purchased $27 million worth of KMI stock around $33. Soon after, the company announced an 11% dividend increase. With such an involved and heavily invested founder, it’s no wonder that many investors choose to invest alongside Richard Kinder.
Today KMI stock is trading around $40, a gain of just over 20% – before dividends – from a stable energy company.
KMI is certainly going to pay a premium to buy the remaining three companies, that’s why those companies spiked so much higher yesterday.
But the company that will be created by the Kinder Morgan merger is much more important than the premium that KMI will pay.
Once completed, the move will create the third largest energy company in North America, smaller only than Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).
The $71 billion deal will involve mostly stock, so shareholders of the target companies will retain ownership in the overall company when they are paid in KMI stock.
For his part, Richard Kinder – a pioneer of the MLP industry – will own 11% of the new company. Investors can take comfort in the fact that they will be investing alongside a pioneer of the energy industry with a proven track record for huge returns.
KMP is up over 80% during the past five years while EPB is up over 110%, not to mention the massive dividends paid out in that time.
I doubt Richard Kinder would be consolidating all of his companies under one roof unless he thought it was the best thing to do for shareholders like himself. And the market seems to agree with me based on its positive reaction to news of the Kinder Morgan merger.
Time will tell how much cash this energy powerhouse will generate for its shareholders. I, for one, wish I had taken the plunge and bought shares of a Kinder Morgan company long ago. It is exactly the kind of company I’d like to own over the long haul.

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