03-27-2016, 11:21 AM
Most people were buying Kinder Morgan because of the yield. Last year, the yield became too high, which should have tipped us off, that something was wrong. Not only was the yield very high, the dividend payout ratio was equally disturbing. There was no way that KMI could deliver on their promise to raise the dividend for a 6th year.
Furthermore, research has shown that companies that have raised their dividends for mange decades are much less likely to cut their dividends compared to those who's track record is only a couple of years, like KMI. One of the reasons is a culture in the management, that develops in these companies. For instance, Procter & Gamble have raised their dividends for 59 consecutive years. Who would want to be the CEO to cut the dividend after 6 decades? Most of PG's shareholder are in it for the income, so if PG were ever to cut, the stock price would fall a lot.
With this in mind, the 5 year dividend increase streak of KMI was not very impressive. One could have bought one of the following stocks, that have raised their dividends for multiple decades:
Best dividend growth stocks with the highest dividend increase history
There are of course no guarantees that they will keep raising those dividends, but I would sleep better knowing that the risk of a cut is much smaller than Kinder Morgan.
Furthermore, research has shown that companies that have raised their dividends for mange decades are much less likely to cut their dividends compared to those who's track record is only a couple of years, like KMI. One of the reasons is a culture in the management, that develops in these companies. For instance, Procter & Gamble have raised their dividends for 59 consecutive years. Who would want to be the CEO to cut the dividend after 6 decades? Most of PG's shareholder are in it for the income, so if PG were ever to cut, the stock price would fall a lot.
With this in mind, the 5 year dividend increase streak of KMI was not very impressive. One could have bought one of the following stocks, that have raised their dividends for multiple decades:
Best dividend growth stocks with the highest dividend increase history
There are of course no guarantees that they will keep raising those dividends, but I would sleep better knowing that the risk of a cut is much smaller than Kinder Morgan.