Kinder Morgan Canada (KML-T)

(A Top Pick Feb 14/19, Up 5%) Kinder Morgan Canada was purchased by Pembina Pipeline. This was the TMX project. He was hoping for a better price in the acquisition, so the return was muted.

The payout ratio on PPL is about 98%, so there is not a lot of wiggle room. He does not own this one. The company is looking to buy KML. He has a short on this simply because they are already long KML. The balance sheet is better than most pipelines out there. However, it does not score cheaply enough on valuations for him to want to buy today. Yield 5.2%

Now they have a lot of cash. The intention of the parent company is not very clear. They could use it for distribution or other things. We don’t know. Next step is doing what they are doing.

What is in it for the shareholders when the Canadian government is involved? Will they make Canada a friendly place to invest again? There is so much uncertainty, so he would not be considering this as an investment.

They have a project that politicians are talking about de-risking but it has not been done and there is no construction taking place. This is a show-me stock.

Kinder Morgan Canada (KML-T) vs Kinder Morgan (KMI-N). He is luke-warm on both of these. Higher interest rates will put downward pressure on these pipeline/utility sector stocks. KML is trading above fair value he thinks and does not have the earnings to support these prices.

Because it looked kind of dicey to get approval, and its very strange timing of the IPO, he didn’t participate. They priced it down, but not low enough. To help with a financing, they came out with a very attractive preferred, which he bought.

He looked at it when it came public. If they can get the expansion of the pipeline to go through they could do well. Roll your dice on whether it comes through and he does not know how long it will take.

Kinder Morgan (KMI-N) or Kinder Morgan Canada (KML-T)? In the short term, he would choose neither. If certain things happen, he would look at the Kinder Morgan Canada position. The Canadian subsidiary, without the pipeline expansion, is worth $15. That is just on the assets and the quality of the assets. Since you can get the shares close to $15, you are getting all the optionality. He is waiting for an opportunity to get this under $16. In the US, it is an MLP, and he is not positive on the MLP market. There is just so much debt associated in that area.