Rich is Losing His Patience

Rich Kinder Co-Founder, Chairman, and CEO

Rich Kinder
Co-Founder, Chairman, and CEO

Rich Kinder officially reached “irked” status on Friday with the recent stock performance of Kinder Morgan, Inc. (NYSE: $KMI). The gargantuan (or mucho for my Texas friends) GP hit a 52 week low of $30.93 the day before, as analysts again raise concerns over $KMI’s ability to grow distributions from such a large base ($100+ Billion enterprise value for the family of $KMI companies) in a rising interest rate environment.  Mr. Kinder is an investors CEO, often in the market buying the stock on dips.  In the month of February 2014 alone he made three separate purchases that totaled 400K shares at a cost of $12.7 million (not bad for a guy that takes in a salary of just $1 a year) for an average price of $31.70 per share.  His open market purchases are normally enough to encourage investors to get behind the stock and establish a floor on the price, but instead it’s been the case of “how low can she go.”


The company’s Friday press release was entitled “Kinder Morgan Expects to Meet or Exceed 2014 Financial Expectations.” The presser seems to be completely market / steam coming out of Rich’s ears driven as it provides no new information.  It simply reiterates the companies $14.8 billion backlog and budgeted dividend growth of 8% over the prior year ($1.72 per share), both of which were well telegraphed back at the $KMI analysts day on January 29.  The fact that $KMI emphasizes “exceed” is also not news, as Rich is known for fully deploying the UPOD (under promise and over deliver) theory when it comes to distribution growth.

The stock reacted positively to the Friday news, up more than 2% in a down market tape. The fact remains though that presser’s alone will not solve $KMI’s tired stock performance.  Over 50% of the company’s backlog is tied to a single Canadian pipeline project and it’s also concerning that just two years after $KMI absorbed El Paso the growth story is gone.  However, investors get paid a 5% yield to wait around and if history tells us anything its to never bet against Mr. Kinder.

Uinta Basin: Valuation Reset

On November 1, Canadian E&P Crescent Point Energy announced an $861 million acquisition of Ute Energy’s Central Basin (CB) assets in Utah.  This represents Crescents first entry into the basin, and really its first entry deep into the US.  This transaction provides a good valuation reset for other operators in the area:  $BBG, $BRY, and $NFX.  Current Ute production is 7,800 boepd, and when you back out the $700 per acre placed on the acreage, they are paying $124K per producing barrel. 

Crescent Point Energy Operating Areas

Crescent is an E&P that falls under the radar since it only trades on the Toronto Stock Exchange, and has typically only operated in Canada.  However, it pays a hefty $.23 cents per month dividend, which at today’s price of $39.62 produces an annual yield of 6.9%.  The company has low leverage as well with just 10% debt-cap.  The bountiful dividend and monthly payout (think compounded re-investments [12 instead of typical 4]) are attractive, but the Canadians take out 15% for dividend taxes and you end up paying higher commissions to buy on the TSX.  Still, not a bad stock to add to the shopping list if the dividend where to creep higher. 

Bottom line on Uinta: 

  • Valuation has been reset with this M&A deal
  • Interesting to see if CB shale oil / horizontal drilling can become economic
  • Look for other larger independents to enter the play if successfull

Mail Box Money: WYNN Resorts Dividends

Steve Wynn is # 1 Shareholder Friendly CEO

Steve Wynn is # 1 shareholder friendly CEO.  On Wednesday WYNN Resorts announced an $8 special dividend and raised their regular dividend 100%, from $.50 per quarter to $1.00 per quarter.  Prior to earnings release the stock was trading for $113 in change, which equates to a 2011 yield of 8.8%.  Assuming another $8 special dividend in 2013 and the yield rises to 11%.  Did I mention that WYNN resorts is also growing bottom line earnings 4-6% and has a $4 billion Cotai project in the backlog?  Not many investments come along with significant yield, significant growth, and a pristine balance sheet.  WYNN resorts is the ultimate mail box money for stock investors. 

Black Gold near Sin City?

Could it be that miles below sin city is a vault full of black gold?  Noble Energy announced on Thursday that they believe a significant oil resource resides in north eastern Nevada.  Noble has acquired 350,000 net acres in the tight oil play at less than $200 per acre.  In the investor presentation Noble points out this play was overlooked and under explored by the industry.  Noble plans initial production in late 2014, ramping up to grow production to 50,000 bpdoe. 

It is refreshing to know that Noble was not out chasing the hottest new play.  They were taking their geologic knowledge and applying it to a new play.  This demonstrates the entrepreneurial spirit that is embedded in the oil & gas industry, and a reminder for us all that it’s better to lead than to follow, it’s better to be lucky than to good. 

Increased exploration from companies like Noble, and consistent improvement in technology, will eventually make America energy independent.  Not too mention creating value for shareholders, additional American jobs, and increased taxes paid to the government.  I love big oil.

WYNNing with American Jobs

Steve Wynn is already an iconic American businessman.  He is a proven entrepreneur and a visionary in the hospitality and gaming industry.  American workers have been WYNNing with Steve Wynn over time as well, he has estimated to create over 250,000 jobs over his lifetime in the State of Nevada.  He has provided healthcare to his employees for 45 years.  In today’s world of political correctness though, Mr. Wynn’s best characteristic is his candid analysis of politics, grounded in facts and reality.  This was on display this past Friday on CNBC.  Here’s my favorite exchange from the video:   

Joe Kernen (CNBC):  “When you create a job suddenly your also creating market cap for your shareholders.  I tried to add up Mirage + Wynn, then I think all those employees are paying taxes to the government, and I look at the multiplier of a private job versus what the government can do, and it’s just mind boggling.”

Steve Wynn:  “It sure is.  It would be wonderful if you could repeat that to President Obama, because his lack of experience in the real world is causing this problem.  Anybody that had any experience in business would immediately understand these fundamental relationships and they would behave accordingly.”

Investing in CFA

If you ask the general public (or even a business professional) to define a certification for excellence in financial markets, you probably would get a variety of answers:  Certified Public Accountant, Certified Financial Planner, or perhaps Certified Management Accountant.  The truth is that all of those are on the B team of certifications, the gold standard of financial markets certification is the Chartered Financial Analyst (CFA). 

This “gold standard” endorsement was validated by the recent CFA survey of June 2012 exam takers.  When asked “about how many hours did you spend preparing for the June 2012 CFA exam,” the average was 291 hours for those that Failed the exam, and a wopping 309 hours for those that Passed.  That equates to 12 complete days of studying, or equivalent  of 15% of the annual average work year. 

Investing in the CFA is a costly investment of time and resources, but this certifcation creates knoweldge that pays dividends for decades to follow.