After a Tough Year for Equities, Kinder Morgan Stock is Looking Cheap
Shares of Kinder Morgan, Inc. (NYSE:KMI) have been hammered in recent months. But for savvy investors, the recent dip may be a great opportunity to pick some Kinder Morgan stock up on the cheap.
After years of monetary policy–induced capital gains, the stock market is taking a well-deserved break and the only returns you may get in this slow-growth world are from dividends and high-yield stocks.
And yes, they’re still attractive in a rising rate environment.
The fact of the matter is that interest rates are so low that they can move materially higher without competing for dividends and the cost of capital to finance them.
Even though big companies have tons of cash on their books, many brand name large-caps are actually financing their dividend growth through debt. Capital—for corporations—remains very cheap.
A portfolio can benefit significantly from dividend-paying stocks, but you don’t want to buy high-yield stocks just because they have an above-average yield.
In a slow-growth environment, however, with the stock market having already gone up, dividend income is an attractive asset.
Kinder Morgan Stock Is Perfect in a Slow-Growth World
A lot of the time, you’re going to get high-yield stocks from market sectors that are in correction/consolidation. Share or unit prices go down, dividend yields go up.
There are typically higher yields available from real estate investment trusts (REITs) or master limited partnerships (MLPs), and as part of an overall portfolio, these can be good holdings for an income-seeking investor.
In this particular market environment, I like sectors that have already corrected. In particular, the oil and gas sector offers a number of good picks for income investors.
The kicker with this market sector is that there is also good potential for capital gains when oil prices recover. It will take a while, but energy is a top component of the global economy.
The commodity price cycle in resources tends to be lengthy, so an income investor considering new positions now has to be patient.
I like Kinder Morgan stock. With solid pipeline and storage assets in both oil and natural gas, this is one of those high-yield stocks (its dividend yield is currently over six percent) that offer good income growth and capital gains potential over the next several years.
Even if you’re not investing in the stock market for income, automatic dividend reinvestment in additional shares is a great investment strategy to consider as part of your overall portfolio. As a stockholder, your dividends get reinvested in additional company shares at no cost. You get to build a larger position in a solid business over time. The six-percent dividend yield on Kinder Morgan stock fits the bill perfectly.
The Bottom Line on Kinder Morgan Stock
This market has had its run on the back of the greatest monetary expansion in history. So I don’t think it’s unreasonable to expect several more years of sideways trading action, which is what stocks have done so many times historically after huge capital gains.
There’s room for one or two high-yield stocks even in a growth stock portfolio because really, genuine economic growth with the stronger U.S. dollar is likely to be in the very low single digits—at best. Kinder Morgan stock fits this bill perfectly.