Saturday, August 13, 2011

Stocks I Discussed at the Money Show Part 1

The San Francisco MoneyShow was a great success. During this past week, I gave two presentations on high dividend stocks, one on Wednesday and one on Thursday, did a book signing, and had three videotaped interviews. The original title of my speech was Spotlight on Five Dividend Stocks; however, by the time I presented, I cam up with a few more ideas that I wanted to cover so I ended up changing the name to Spotlight on Several Dividend Stocks.

The first investment I talked about was Kinder Morgan Energy Partners LP (KMP), which is a master limited partnership yielding about 6.5% and was selling at 69.72 per share when I covered it on Wednesday. Kinder Morgan is the largest independent transporter of refined petroleum products, the second largest transporter of natural gas in the U.S., the largest independent terminal operator, the largest transporter and marketer of CO2, the second largest oil producer in Texas, and the only oilsands pipeline serving Vancouver B.C. and Washington state area.

The company has minimal exposure to commodity price volatility due to limited ownership of energy products. As for the CO2 business, the company does own the commodity but hedging is used to reduce price volatility. The company does not have corporate aircraft or corporate sponsorships, nor does it provide sports tickets or executive perks to the officers. KMP is one of the few publicly traded companies that publishes its annual budget on its web site, along with its environmental, and health and safety performance.

As for the head of the company, Richard D. Kinder, he has a salary of $1 per year, and receives no bonus, no stock options, and no restricted stock grants. His compensation is from being a unitholder. KMP's compound average growth rate is 27% since 1996 and the compound average growth rate of distributions is 14% during the same period. The company has met its budgeted payout for ten out of the last eleven years, and for the year that was missed, 2006, the miss was only two cents.

One issue to be aware of with this type of investment is that MLP's send out K-1's instead of 1099's for tax purposes, which means that more time and tax forms will be involved, along with possible additional tax preparation expense from your CPA. One way to get around this is through Kinder Morgan Management LLC (KMR), which is almost identical to KMP except that it pays out its returns in shares instead of stock. It is primarily designed for retirement plans in order to avoid the UBTI or Unrelated Business Taxable Income problem. Ask your accountant before putting any retirement plan money in an MLP.

Another company I talked about was Capstead Mortgage Corp. (CMO), which was trading at 12.47 per share on Wednesday. This government guaranteed mortgage real estate investment trust, also known as a GGMREIT, sports an incredible yield of 14.9%, which it generates by investing in adjustable-rate residential mortgage securities that are issued and guaranteed by government-sponsored entities, such as Fannie Mae & Freddie Mac, and Ginnie Mae, which is an agency of the federal government. This gives the investment an implied AAA rating - oops I mean a AA+ credit rating after the decision by Standard & Poor's.

The high yield is generated through leverage. For the latest quarter ended June 30, 2011 the company had a 17% increase in net income per share from $0.41 in previous quarter to $0.48 for the latest quarter, a 2.55% increase in book value, and a 22% increase in net interest margins. For the last ten years, CMO's total return was 585%.

On a year over year basis, net income per common share for the quarter increased by 37%, and cash dividends per share increased by 33%. As a REIT, a 1099 would be issued.

If you like high dividend stock ideas, check out the numerous lists of high dividend stocks at, that can be downloaded, updated, and sorted. Also, stay tuned for upcoming articles on more stocks from the MoneyShow.

Disclosure: Author did not own any of the above at the time the article was written.


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