I have no doubt, Spekulatius, that your insight into the MLP business model very likely exceeds mine.
I tend to interrogate how much of a company's initial Turnover/Revenue ends up at its Bottom Line, which, in turn, ultimately benefits the overall financial state of its Balance Sheet, more often than not by the build up of its Retained Income.
Needless to say, there are several factors that "bleed off" that Revenue as it works its way down the Income Statement, one of them being Interest Expense, which is why I put forward my query.
As you say, debt forms a part of an MLP's capital structure which contributes to its "action". But obviously debt costs, irrespective of the business model.
A quick calc of the relationship of KMI's EBIT and Interest Expense over the last 5 years, starting in 2009, shows us that debt expense reduced KMI's EBIT by 35%, 58%, 41%, 52% and 42% respectively.
Currently debt is cheap if one looks back in fairly recent history. One wonders how long that will continue to be the case, all things being considered.
If we refer to good ol' Buffett, the more ideal companies reflect about 15%. However, that's more of the ideal case. Let's double that and use, say, 30% of EBIT.
That would give KMI an Interest Expense for 2013 of roughly $1200mil.
KMI reported $1675mil. Interest Expense and had a Tax Percentage of about 22%.
Based on $1200mil., KMI would have added an extra after tax amount of $370mil. to its Bottom Line, and increased its original Net Income of $1193 by about 31%.
I guess that would have added to the Dividend payout and the "juice" which probably forms part of the action you referred to.
I was just wondering if KMI could still maintain its MLP type model but should maybe consider reducing its debt load and thereby somewhat improving its Bottom Line to the benefit of its investors. |
