Kinder Morgan 101: Knowing Which Kinder Morgan Company is Right For You

Photo credit: Kinder Morgan

Kinder Morgan 101: Kinder Morgan’s family of companies offers

investors four ways to invest under three different corporate structures:

Kinder Morgan, Inc. (NYSE: KMI) is a corporation. Kinder Morgan Energy Partners (NYSE: KMP) and

El Paso Pipeline Partners (NYSE: EPB) are Master Limited Partnerships.

Kinder Morgan Management (NYSE: KMR) is a limited liability company.

Kinder Morgan 101: Each entity has a specific purpose as well as its

own risk/reward profile. Not only that but some entities require more

paperwork for taxes and aren’t best suited to be owned in a retirement account.

As a whole this creates a rather complex looking corporate structure that causes some investors to avoid the opportunity altogether.

Kinder Morgan 101:

Kinder Morgan 101:To help you better understand each entity we need to take

the company apart and rebuild it from the ground up.

El Paso Pipeline Partners (NYSE: EPB)

Let’s start with El Paso Pipeline Partners – El Paso Pipeline Partners is an MLP that Kinder

Morgan acquired when it bought El Paso Corporation in 2011.

100% of El Paso Pipeline Partners’ business is natural gas pipelines.

El Paso Pipeline Partners (NYSE: EPB)

Key considerations: El Paso Pipeline Partners’ growth comes from

asset dropdowns from Kinder Morgan Inc as well as organic expansion opportunities.

Currently the company’s distribution growth is on hold as it integrates recent dropdowns and completes major growth projects.

Distribution growth is expected to resume in 2017.

El Paso Pipeline Partners (NYSE: EPB)

Key assets: El Paso Pipeline Partners owns 13,000 miles of

pipelines and 100 billion cubic feet of storage capacity.

In April it announced it will be acquiring $2 billion in additional pipeline and storage assets from Kinder Morgan Inc.

It is also pursing LNG export projects in Georgia and Mississippi.

El Paso Pipeline Partners (NYSE: EPB)

Key Assets: El Paso Pipeline Partners owns 13,000 of pipelines

and 100 billion cubic feet of storage capacity. In April it announced it will be acquiring $2 billion

in additional pipeline and storage assets from Kinder Morgan.

Pursing a LNG export projects in Georgia and Mississippi.

El Paso Pipeline Partners (NYSE: EPB)

Why you’d invest in El Paso Pipeline Partners: Not afraid of MLPs and the extra paperwork

associated with owning one. Desire to make a direct investment on natural gas. Looking for upside to natural gas exports. Seeking a stable distribution – currently yields

7.59%, but will begin to grow starting in 2017.

Kinder Morgan Energy Partners (NYSE: KMP)

Next up is Kinder Morgan Energy Partners – Kinder Morgan Energy Partners is the main

income generator for the Kinder Morgan family of companies.

The MLP owns a bulk of the assets and its business is diversified into natural gas pipelines, carbon dioxide, products pipelines, terminals and Kinder Morgan Canada.

Key considerations: Kinder Morgan Energy Partners’ growth comes

from acquisitions and from $16.4 billion in identified organic growth projects.

Company has a three year target to grow the distribution by a compound annual growth rate of 5%.

Kinder Morgan Energy Partners (NYSE: KMP)

Key assets: Kinder Morgan Energy Partners own 54,000 miles

of pipelines and 180 terminals. Is the leading transporter and marketer of carbon

dioxide in North America as well as a leading producer of oil via enhanced oil recovery.

Proposing to spend $5.4 billion to triple the capacity of its Trans Mountain pipeline in Canada to meet growing demand for oil sands takeaway capacity.

Kinder Morgan Energy Partners (NYSE: KMP)

Kinder Morgan Energy Partners (NYSE: KMP)

Why you’d invest in KMP: Not afraid of the extra paperwork associated with

owning an MLP. Seeking a diversified “workhorse” as a core

energy holding. Looking for a strong yield (currently 7%) along

with consistent distribution growth.

Kinder Morgan Energy Partners (NYSE: KMP)

Kinder Morgan Management (NYSE: KMR)

Now let’s tackle Kinder Morgan Management – Kinder Morgan Management a limited liability

company. It is akin to investing in Kinder Morgan Energy

Partners as its only assets are units of Kinder Morgan Energy Partners.

Like an MLP it is tax efficient, but it comes with simplified tax reporting as there are no K-1s or UBTI.

Kinder Morgan Management (NYSE: KMR)

Key considerations: It pays a dividend that’s equal to KMP’s cash

distribution. However, the dividend is in additional shares of

KMR. Basically, it’s a dividend reinvestment program.

Kinder Morgan Management (NYSE: KMR)

Why you’d invest in Kinder Morgan Management:

Want to invest in the growth of Kinder Morgan Energy Partners but don’t want the extra paperwork.

Not seeking current income as your plan was to reinvest the income anyway.

Looking to hold in a tax advantaged retirement account to enjoy the compounding effect of this business to create a nice nest egg for retirement.

Kinder Morgan Management (NYSE: KMR)

Kinder Morgan Inc. (NYSE: KMI)

Finally, let’s wrap it up with Kinder Morgan Inc Kinder Morgan Inc is a corporation. It’s working towards becoming a pure-play

General Partner. It owns stakes in both of its MLPs as well as some

additional assets.

Kinder Morgan Inc. (NYSE: KMI)

Key considerations On a consolidated basis Kinder Morgan is…

The third largest energy company in North America with an enterprise value of $110 billion.

The largest natural gas network in North America representing a third of U.S. market demand.

Largest independent transporter of petroleum products in North America.

Largest transporter of carbon dioxide in North America. Largest independent terminal operator in North America.

Kinder Morgan Inc. (NYSE: KMI)

Key assets Owns the General Partner of KMP as well as 27 million

units or 9% of the company. Owns the General Partner of EPB as well as 90 million

units or 41% of the company. Owns 16 million shares or 13% of KMR. Owns 20% of the Natural Gas Pipeline Company of

America. Working to drop down three assets to EPB as it sheds

itself of legacy assets acquired in the El Paso Corporation deal.

Kinder Morgan Inc. (NYSE: KMI)

Key considerations On a consolidated basis Kinder Morgan is…

The third largest energy company in North America with an enterprise value of $110 billion.

The largest natural gas network in North America representing a third of U.S. market demand.

Largest independent transporter of petroleum products in North America.

Largest transporter of carbon dioxide in North America. Largest independent terminal operator in North America.

Kinder Morgan Inc. (NYSE: KMI)

Why you’d invest in Kinder Morgan Inc. You’re simply wanting to invest in the future of

the Kinder Morgan business. Plan to hold it in a tax advantaged account like an

IRA. You are willing to trade a lower yield ( currently

4.8%) for a faster growing payout. KMI’s dividend is expected to grow 8% annually. Meanwhile, KMP/KMR payout is to grow 5% annually

and EPB offers no growth until 2017.

Investor takeawayKinder Morgan might seem complex but each of its four ways to invest serves a specific purpose. If you find your purpose,

you can find the investment that suits you the best.

Do you know this energy tax “loophole”?