I'm surprised that so many people were surprised by KMI's dividend cut. It started to become an overlevereged dangerously high-yielding mess several months ago, with no catalyst to save it unless energy prices were to suddenly rebound out of nowhere.
I sold KMI back when it was $30/share, took my moderate loss and moved on. Then I saw months of daily articles on KMI and how it'll be okay and to just hold onto the 8% yield, then the 9% yield, then the 10% yield, despite the incredibly high interest rates on their bonds that were nearly junk. Articles were more emotional than factual. Then of course the dividend was cut. Should we hope for a recovery or move to safer pastures? I vote neither. If I hope for a recovery I'm speculating rather than investing, and there's no clear catalyst for a recovery any time soon; I want a company that can do well with or without high energy prices.
I sold KMI at $30. Honestly, it's probably a good investment at $16 today, if you look back at it 5 years from now. But it's still overleverged and vulnerable, with interest rates likely to rise soon. It's a deep value play at this point, and somewhat speculative. It's slightly tempting to buy it back now, having avoided the stock getting cut in half from my selling price, but I'll pass.
Spectra (SE) is a bit riskier, due to their DCP Midstream holding, but they still have their distribution covered even in the current low oil/gas price environment because most of their holdings are not sensitive to prices, and they have a lot of upside potential. Buying the partnership (SEP) is a bit more conservative, likely a strong energy buy today.
My personal advice - buy quality in the sector, imo. Not companies that require a recovery to do well. Look for strong balance sheets, good distribution coverage, and partnerships and companies that have room for acquisitions of distressed assets. There are several examples of those types of businesses that had their stock prices unfairly beaten down along with the ones that actually deserved it. |
