I am sorry, I have temporarily run out of cute titles.
Investing in stocks with high dividend yields in a very controversial subject. When interest rates were manipulated to unrealistically low levels after the 2008 crash, there was plenty of bad investment thinking in this group of stocks. There was way too much cheerleading for very mediocre companies, just because they had a 5% yields.
For example, let’s buy Leggett & Platt, it is a, m…f…ing “dividend aristocrat”, it has horrible fundamentals, but we love that 5% yield. These ideas were often disasters.
To me, it is important that having a high yield as only the 4th most important reason for buying a stock.
Let’s see how that works in the context of Kinder Morgan - KMI, my favorite high yield stock.
KMI has accumulated a significant number of great projects in their backlog if the regulators would just step aside. KMI is active in LNG, carbon capture, and host of other important technologies. The rate base could expand significantly.
The US needs to build more gas fired power plants, supplied by KMI, if we are going to meet our energy needs. Yes, Virginia it’s true, KMI is actually an AI stock.
It took me at least 10 years of convincing that this management could be excellent stewards of capital. KMI management has been too aggressive is the past, but they have recently behaved themselves and cleaned up their balance sheet. The board does own 13% of the stock.
You get paid almost a 6% yield to wait for KMI, and the alternatives are less exciting.
Natural gas pipelines are very complex. I remain concerned that the FERC is not up to its regulatory responsibility, but the risk/return tradeoff at KMI is just to good to pass up.
There are about 150, US based, non-financial, alternatives with yields over 5%
Let’s consider the some of the alternatives:
Philip Morris - PM - 5% - is close second to KMI. I think these guys have an amazing plan with their smokeless alternatives, but KMI is actually simpler to understand.
Verizon - VZ - 6.5% - is a solid alternative, but I am disappointed by their lack of ability to monetize their 5G investments. ATT’s under-investment scares me.
Dow - DOW - 5% - is a great alternative, but 25% of the business is still tied to autos and housing. I am impressed by their restructuring.
The best utilities have 5% yields, but they have nowhere near the ability to expand the rate base that KMI has. KMI has more ability to buyback stock and make acquisitions.
Bristol-Myers - BMY - 6% - and Pfizer - PFE - 6% - are reasonable alternatives, and could be big beneficiaries of a lower US dollar.
Whirlpool - WHR - 7% - seems likely to cut, if the Germans do not buy them.
Civitas - CIVI - several smart value guys like the variable dividend idea, but the reserve life of their primary basin is still an issue
Wendy’s - WEN - 6% - has been restructuring forever, but I worry about the franchisee base.
There are a dozen midstream LP’s that I just do not understand, and I think need to unwind their LP status
Kohl’s - KSS - 8% - Herb Kohl used to help bag my parents groceries in the 1960’s, I know the story too well, I think the merchandise mix went a little too high-end.
KMI is my favorite high yield stock. Reasonable folks could own a few more in value portfolio, but be very careful “reaching” for yield.