Income & Dividend Investing

Re: KMR / KMP

cliff — Mon, 16 Nov 2009 13:23:44 GMT

Opahujo:

Cliff, I have read all the 2008 posts in this thread about KMP versus KMR tradeoffs. I wonder whether there have been more recent discussions about the same subject. I am looking at both KMP and KMR and I see that there is still a considerable spread between the two stocks.

Welcome to the neighborhood, Opahujo.

At the top right of this page you'll see a box that says "Search Discuss." Stick the number 2702244 in that box and click go.

When it pops up a post, go to the bottom of that post and click "View Complete Thread."

You'll then see a conversation from September of 2009 that is largely about the KMP/KMR pricing differential.

Regards.

Cliff

Re: Re: KMR / KMP

Opahujo — Mon, 16 Nov 2009 02:31:12 GMT

Cliff, I have read all the 2008 posts in this thread about KMP versus KMR tradeoffs. I wonder whether there have been more recent discussions about the same subject. I am looking at both KMP and KMR and I see that there is still a considerable spread between the two stocks.

Re: KMR / KMP; Arbitrage opportunity?

monrovia — Wed, 16 Jul 2008 20:32:09 GMT

Dec 22 2004 kmp got to 49 and KMR was at 43 so I switched.

Re: KMR / KMP; Arbitrage opportunity?

cliff — Wed, 25 Jun 2008 12:30:52 GMT

DeepValue:
Has anyone thought of placing a long position on KMR and shorting KMP. There's over a 9% spread between the two.

I'd check three things before I did that. First, I'd double-check that 9% calculation - on a $58 unit of KMP, that would be a $5.22 difference and it ain't that and never has been to my knowledge. Second, I'd check the price history of both KMP and KMR to see the range the price differential bounces around in. Third, I'd ask myself why, in the future, there might be some convergence in price when there has not been in the past. In other words, what do you know that the market does not?

I have held both KMP and KMR for some time.

Regards.

Cliff

KMR / KMP; Arbitrage opportunity?

DeepValue — Tue, 24 Jun 2008 22:50:22 GMT

Hey,

Has anyone thought of placing a long position on KMR and shorting KMP. There's over a 9% spread between the two.

Re: Stats:

PreII — Tue, 05 Feb 2008 04:13:52 GMT

I have KMP in a taxable and KMR in a Roth IRA. I have sold what I consider a risky investment, CSE, in my Roth...because I have concerns the dividend may be cut. I put the entire amount in KMR. Richard Kinder is also one of the most honest CEOs...taking only $1 as an annual salary.

Stats:

copie — Tue, 05 Feb 2008 02:46:08 GMT

I have KMP in my taxable accoount and KMR in my IRA and will convert it over to my Roth one of these days. Every thing I have read seems to show that KMP does better in a taxable account just like Cliff said. I think KMR can go in both accounts.

Copie

Re: KMR / KMP

statsguy — Tue, 05 Feb 2008 02:22:24 GMT

Thanks to all the replies... especially cliff. It is as I suspected but was not clever enough or too lazy to figure out on my own.

Thanks again, I think it all makes sense now.

Stats

Re: KMR / KMP

cliff — Tue, 05 Feb 2008 00:50:02 GMT

George, before getting to the grit, here's a hint on that Peter's book. Read Appendix 2 and Appendix 6 back-to-back - taxes and pipeline MLPs. It'll make sense.

If you held 100 shares of KMR, then on the next distribution date (Valentine's Day),you will get $92 worth of KMR stock. At the current price of KMR you'll get just less than 2 additional units - but let's call it 2. That means you now own 102 units. In three months, your next distribution share will be determined on 102 units instead of the 100 you originally had.

I have never been charged anything for this. The shares show up, the total grows, and if you allow it, the compounding thing kicks in.

If you don't sell anything, there is no current tax effect.

If you want to then sell some of your units then you'd have a commission to pay, I assume. And in that event, you would have a tax consequence.

As I said, I own both KMP and KMR. I get cash distributions from KMP - that I pay very, very little tax on because, well . . . that's the law. I spend that cash or re-invest as I choose. I get equivalent unit distributions from KMR that I just let accumulate into more and more units - it's my reinvestment into the Kinder properties. I pay no current taxes on that accumulating amount because, well . . . that's the law.

And I am one law-abiding mother.

Regards.

Cliff

Re: KMR / KMP

gb267 — Mon, 04 Feb 2008 23:18:49 GMT

Hi Cliff,

OK, down to the nitty-gritty. (I already admitted to being easily confused.) If I hold 100 shares of KMR in my (taxable) brokerage account, additional shares, rather than cash, will be deposited to my account on Dividend Day? I presume that typically transpires without brokerage trading fees. I was unaware of that "feature", and am not sure that is appealing, from a cash flow standpoint, but I'll have to give it more thought. You're quite right -- KMP and KMR have both promised to distribute $0.92 (on Valentine's Day).

I understand that Josh Peters treats MLP's in his new book. I have the book, but haven't read that far, yet. Thanks for your help.

George

Re: KMR / KMP

cliff — Mon, 04 Feb 2008 21:55:44 GMT

"Mathematically, KMR shares should trade in lockstep with KMP shares. One share of KMR gives its owners essentially the same rights, ownership interest, and partnership distributions as one KMP unit. The only difference is that KMR holders receive their distributions in additional shares instead of cash. Think of KMR shares as KMP units with a built-in dividend reinvestment plan."

Since KMP and KMR should theoretically trade in lockstep, I think that means that KMR is relatively cheaper because it currently has the higher dividend."

Stats/George, you're gonna love this. I hold both of these in a taxable account.

KMR pays its dividend in shares, right? So, it's like a 2 for 1 stock split, except that it's about a 7 for 100 stock split every year - the approximate 7% yield, right?

What that means is this: absolutely nothing with respect to your current taxes. No K-1, no 1099, no current taxes to pay. At the end of a year that you started with 100 units of KMR you now own about 7 units more and there are 7% more total units outstanding.

Nothing to report to the tax man. No paperwork received or sent. All that's happened is that your original investment is now spread over 107 units instead of 100.

When/if you sell, your tax basis per share is reduced but your original investment is the same. You would then have a tax consequence on the gain or loss.

As to your other question, you might want to check your dividend numbers. So far as I know, KMP and KMR have had the same distribution amounts.

But there is an opportunity whenever considering these shares. Morningstar is correct - mathematically the units should move in lockstep. Except sometimes they don't.

KMP always trades higher than KMR and, on top of that, they don't move exactly together all the time.

On 12/31/07, KMP was $1.05 higher than KMR. Today they closed $3.21 apart, again KMP was higher.

Go figure, they're the same thing basically but KMP has gained 7% YTD and KMR has gained less than half of that.

What it says to me is that there's some imperfection in the market and, if I were a buyer today, I'd buy the KMR over the KMP - same distribution but $3.21 cheaper. I've owned and tracked these for almost 4 years and the difference between the two market prices ranges from around a buck to just over $3.

(I suspect part of this disparity has to do with distribution pay dates and the relative attractiveness to some investors of the traditional MLP distribution/tax model.)

Regards.

Cliff

Re: KMR / KMP

gb267 — Mon, 04 Feb 2008 21:20:19 GMT

As one who is easily befuddled, I also have trouble sorting out others involved in this
doppelgänger game -- a somewhat similar situation exists for BGH/BPL, OKS/OKE, SE/SEP, etc. All the result, I'm sure, of clever methods of dancing around our innane and ridculously convoluted Tax Code (which I promise to scrap in its entirety when elected Philosopher King.) As I've lamented before, it is a shame that tax consequences have such significance in the manner in which business is conducted, both at the corporate and individual investor levels.

Cheers,

George

Re: KMR / KMP

Sirschnitz — Mon, 04 Feb 2008 21:00:03 GMT

Stats, I own KMR in a tax deferred account. Reinvesting KMR dividends are fine with me, and naturally, in an IRA there are no taxes on dividends. However, for taxable accounts, I believe KMR dividends may be taxed, but I am not positive of this. If they are taxed, I don't know if they would be considered qualified or non-qualified dividends. If anyone knows the answer to this, I'd like to know.

I am pretty sure KMP would be preferable for taxable accounts, especially if dealing with k-1's are not a problem. I suspect, but am guessing, that most of KMP's distributions would be offset by depreciation, interest, etc., leaving little of the distribution actually taxed. Of course, when you sell, you will be paying capital gains taxes on KMR, based on a lower tax basis.

BTW, the only other stocks I know of with the same relationship as KMR/KMP is EEQ/EEP.

Regards,
Russ

Re: KMR / KMP

ashen — Mon, 04 Feb 2008 20:49:16 GMT

Hi Stats,

With my limited knowledge kmr is for non taxable because of ubti an kmp is for taxable investing.

Been buying up these beauties in this ugly market.

thanks

amit

KMR / KMP

statsguy — Mon, 04 Feb 2008 20:11:40 GMT

KMR (Kinder Morgan Management LLC) and KMP (Kinder Morgan Energy Partners Limited Partnership) are two fine energy companies. I wish I had bought them in 2006 when I was first considering them... anyway thinking about them again.

How does one choose between these two? Both are very attractively priced right now... we are a little overweight in the energy area so we may make another choice... but still I have thought about this before and never come to a satisfactory answer.

I understand the MLP issues with KMP and they do not present a problem for us. M* says "Mathematically, KMR shares should trade in lockstep with KMP shares. One share of KMR gives its owners essentially the same rights, ownership interest, and partnership distributions as one KMP unit. The only difference is that KMR holders receive their distributions in additional shares instead of cash. Think of KMR shares as KMP units with a built-in dividend reinvestment plan."

Does that mean that one is preferable in a tax deferred account or taxable account?

Since KMP and KMR should theoretically trade in lockstep, I think that means that KMR is relatively cheaper because it currently has the higher dividend

What do others think?

Stats