12-06-2015, 03:37 AM
I've been looking at KMI. Doesn't look good in my opinion.
The problem I see is this:
Yes the cashflow is enough to cover the dividend. But just barely... in fact looking at the numbers during the past few years the cashflow has always covered the dividend but there is not that much left over. The EPS on the other hand... no way. EPS of roughly $0.5 with dividend above $2.00? This is a historical trend too with the dividend being multiple times higher than the EPS. So where does that difference come from? If it's just depriciation then they are completely screwed so there has to be something else here too... still doesn't look good, there is no way that this is a sustainable scenario in the long run.
Then there is the question of growth. Okay so cashflow goes mostly to dividends. So where will the capital for growth come from? In the past it's been getting more debt and creating new shares to be sold on the market. Debt option is getting out of the question since there is already a ridiculuosly huge amount and they are getting close to junk status. I do not need to tell you guys what the small but inevitable raise in interest rates (that will of course be followed by another raise sometime later) will do. So funding growth through debt is not an option. You could always issue more shares but not only does it cause dilution (that is already historically huge) but doing such things at the current share price definitely doesn't seem like a good choice. And creating new shares while keeping the current dividend of course means that the amount of cash required to pay the dividend keeps increasing.
These problems were there before the price of oil fell so they will be there even if the price goes back up. So I just don't see how the company is on a sustainable path. Either a) cut the dividend or b) issue new shares, will have to happen sooner or later. And seeing as the rating agencies are starting to lower their debt ratings it should be sooner rather than later.
Option B certainly isn't a long term answer either, they have already raised cash this way in the past and they can't continue doing it forever without the amount of shares outstanding getting completely out of hand.
The problem I see is this:
Yes the cashflow is enough to cover the dividend. But just barely... in fact looking at the numbers during the past few years the cashflow has always covered the dividend but there is not that much left over. The EPS on the other hand... no way. EPS of roughly $0.5 with dividend above $2.00? This is a historical trend too with the dividend being multiple times higher than the EPS. So where does that difference come from? If it's just depriciation then they are completely screwed so there has to be something else here too... still doesn't look good, there is no way that this is a sustainable scenario in the long run.
Then there is the question of growth. Okay so cashflow goes mostly to dividends. So where will the capital for growth come from? In the past it's been getting more debt and creating new shares to be sold on the market. Debt option is getting out of the question since there is already a ridiculuosly huge amount and they are getting close to junk status. I do not need to tell you guys what the small but inevitable raise in interest rates (that will of course be followed by another raise sometime later) will do. So funding growth through debt is not an option. You could always issue more shares but not only does it cause dilution (that is already historically huge) but doing such things at the current share price definitely doesn't seem like a good choice. And creating new shares while keeping the current dividend of course means that the amount of cash required to pay the dividend keeps increasing.
These problems were there before the price of oil fell so they will be there even if the price goes back up. So I just don't see how the company is on a sustainable path. Either a) cut the dividend or b) issue new shares, will have to happen sooner or later. And seeing as the rating agencies are starting to lower their debt ratings it should be sooner rather than later.
Option B certainly isn't a long term answer either, they have already raised cash this way in the past and they can't continue doing it forever without the amount of shares outstanding getting completely out of hand.