Friday, November 21, 2014

VMI vs. ALK - 2 Months Later

Two months back, September 23, I blogged that I would swap my VMI position for a position in Alaska Airlines, ALK.

Here is the blog link:

Both were paying the same dividend yield (1.1%), but I really like ALK's growth prospects vs. the headwinds that VMI was facing.

2 months later, here is the result:

  • VMI closed today at $136.42, up 1.9% since 9/23/14
  • ALK closed today at $54.50, up 23.6% since 9/23/14
When I sold VMI, I took a loss on the investment.  But holding a stock that's down, and waiting for it to come back, is foolish if there is a better investment available, as this example shows.  This is why its important to keep track of your portfolio, constantly looking at valuation and growth prospects, and to run screens, always on the lookout for better investments, or upgrades to existing holdings.

A full position in the portfolio is around $18, 000.  I established my ALK position with a 2/3 investment at around $45, then added another 1/3 when the stock dropped to around $41.  My total cost for a full position sits at $43.85.  My return so far is 24.3%.
  • Holding VMI, my position would have grown $342
  • My ALK investment has grown $4,374


Friday, November 14, 2014

A Look at the Portfolio - November 14, 2014 Update

The Chump IRA finished this week, week 45 of 52, up 1.2%.  The past four weeks have seen nice, slow growth:

3.30% 2.02% 1.00% 1.20%

Comparing the portfolio to the S&P 500 Index, Chump has edged back into the lead for YTD performance.  Here is a graphic of weekly performance, which I started tracking in week 27:

For the year to date, the Chump IRA up 13.01% vs. 12.33% for the S&P 500.  Not a bad year so far.  It seems the Chump IRA declines a bit less than the broader market, rises a bit less sharply, though no clear predictable pattern is evident.  

Here are a few thoughts at random:
  • The Chump IRA always has a little cash;  the S&P Index does not.  Therefore, I would expect a slight damping effect when comparing the two.
  • It's hard to beat the S&P 500 over any period.  I keep thinking that a portfolio of a few Vanguard ETFs might be the best strategy for those not into stock research.  
  • My ideal ETF portfolio would be:
    • VOO (S&P 500 Index)
    • VO (Mid Cap Index)
    • VB (Small Cap Index)
    • VIG (Dividend Appreciation Index)
    • VWO (Emerging Market Index)
    • VNQ (REIT Index)
  • I own these in my taxable account, and some other accounts that I manage.  This group of ETFs is pretty tough to beat.  All are very low cost, and not actively managed.
  • One thing I really like about the Chump IRA though, is the growing dividends....they just keep growing every year by 15%-20% in total, which creates a very nice compounding effect.
  • I need to keep tweaking my strategy to see if I can get some more alpha!
  • I'm going to tweak my strategy to be a bit more active selling overvalued holdings and replacing them with undervalued holdings.
  • I'm also going to look for a little more growth in my new adds......the portfolio should only contain fast growers and high yielders.  It should not contain slow growers with low yields......I need to analyze the holdings, and weed these out....
Here is an analysis of the Chump stock holdings, not including my high yielders.  I've screened the stocks for today's PE vs. the "normal" PE for the past 6 years.  If the PE today is over 15, and greater than the "normal," it gets a red box.  I've also boxed low yields below 2%, and low growth rates below 7%.  Here is the result:

Using FASTGraphs, it turns out that EYE ratio, earnings yield estimate, is a good proxy for overall attractiveness of a stock.  All of the stocks with an EYE ratio of 3.5 or lower have two or more red boxes.  I was surprised to see the low yield on BBL, was the dividend recently cut?  I need to check.**  Regarding the others, here are a few thoughts:

  • I bought MCD slowly, and its never been at an attractive valuation.  My total gain on MCD over the past couple of years is a mere 5.54%.  Weak.
  • I bought WMT, like MCD, for its stellar history, but its never been a great value.  My total return on WMT since purchase is 12.02%.  Better than MCD, but still weak, and 4% came in the past week....
  • MDT has been a great stock for the's up 74% since purchase, and is getting a little overvalued.  I've trimmed it several times these past two years.
  • GD is another great performer, now a bit overvalued, with a total gain since purchase of over 115%.  I've trimmed this holding, but may need to again.
  • JNJ is up 59% since purchase, and may need to be trimmed.
  • KO is another that I added for reputation and moat, but has never been undervalued.  My total return since purchase is a weak 11%.
Need to give this some thought.

Here is a screen of my high yield, low growth stocks, screened by cash from operations (instead of earnings).  As long as the yields stay above 4%, and they continue to raise the dividend, which might become a problem for SO and PM, I'll continue to hold these:

That's all for now,


**Note:  BBL yield is actually 4.6%...FASTGraph had it as half of that....I'll continue to hold BBL


Thursday, November 13, 2014

HAL rumored to be in talks with BHI (Baker Hughes)

From today's WSJ.....HAL is a large position in the portfolio, and it trading at a nice discount to fair value....


Halliburton in Talks to Buy Baker Hughes
Talks Moving Quickly Between Rival Providers of Oilfield Services

The deal would be one of the largest energy deals in recent years and comes as the industry is grappling with a sharp decline in oil prices.

The deal would be one of the largest energy deals in recent years and comes as the industry is grappling with a sharp decline in oil prices.

Halliburton Co. is in talks to buy Baker Hughes Inc., according to people familiar with the matter.

Talks between the two oil-field-services companies are moving quickly, and they could reach an agreement soon, said two of the people.

The price being discussed couldn't be learned, but a deal for Baker Hughes would likely come at a premium to the Houston company’s market capitalization, which was $21.6 billion as of Thursday afternoon. Halliburton had a market value of $45.2 billion.

Shares of Baker Hughes, which were halted for a while, jumped 15% following the news to $58.75, while Halliburton shares added 1% to $53.79.

A deal of this size would be one of the largest energy deals in recent years and comes as the industry is grappling with a sharp decline in oil prices.

Baker Hughes was formed in 1987 when Baker International and Hughes Tools Co. came together. The company has more than 60,000 employees, according to its website.

Oil-field services companies help energy producers find and extract hydrocarbons. They have had to deal with a glut of natural-gas supply in recent years that caused oil prices to plunge and pushed energy companies to shift operations to oil-rich shale, which is harder to tap.

—Ryan Dezember contributed to this article.

Monday, October 20, 2014

Common Sense from Peggy Noonan

From Peggy Noonan's blog in the Wall Street Journal....

The Travel Ban and the New Czar

    Saturday morning I was thinking of Pascal, as who was not. He had a mordant observation about the physicians of his time. Doctors in those days dressed fancy—long robes, tall hats. From memory: Why do doctors wear tall hats? Because they can’t cure you.
    Why do public health officials speak in public as they do, with the plonking bureaucratic phrases and the air of windy evasion? Because they can’t cure you. Because they don’t really know what they’re doing. I think they are reassured by their voices, like children who wake up from a nightmare and say in the darkness, “That’s not true.”
    * * *
    In his Saturday radio address, the subject of which was Ebola, the president warned the public against “hysteria.”
    Again, the public isn’t hysterical but concerned. One reason is that they have witnessed a series of bad decisions by the government and its institutions. Another is that they know there’s no one to trust in this crisis, no official person who is in charge and seems equal to the task.
    A third component of public anxiety has to do with what normal people can see and imagine, which they have a sense the government isn’t capable of seeing and imagining.
    What normal people can see and imagine is that three Ebola cases have severely stressed the system. Washington is scrambling, the Centers for Disease Control is embarrassed, local hospitals are rushing to learn protocols and get in all necessary equipment. Nurses groups and unions have been enraged, the public alarmed—and all this after only three cases.
    What would it look like if there were 300? That is not a big number in a nation of over 300 million. Yet it would leave the system hyperstressed, and hyperstressed things break down.
    How many people and professionals have been involved in the treatment, transport, tracking, monitoring, isolation and public-information aspects of the three people who became sick? Again, what if it were 300—could we fully track, treat and handle all those cases? If scores of people begin over the next few weeks going to hospital emergency rooms with Ebola, how many of their doctors, nurses, orderlies, office staffers, communications workers and technicians would continue to report to their jobs? All of them at first, then most of them. But as things became more ragged, pressured and dangerous, would they continue?
    This is why people are concerned. They can imagine how all this could turn south so fast, with only a few hundred cases. This is why the White House claims that we will not have a widespread breakout is fatuous: Even a limited breakout would take us into uncharted territory.
    The only thing that will calm the public is competence. Until they see it, warnings about hysteria will be experienced as patronizing and deeply self-serving.
    * * *
    On the subject of a travel ban, the administration and those media members who function as its allies have produced a number of airy statements and sentiments. All of it feels of deliberate obfuscation and confusing of issues.
    We have experienced Ebola in the United States because a Liberian citizen carrying the illness came here on a plane. That is why two of his nurses, so far, have gotten sick, and why scores of people are being tracked.
    In order to enter the United States, Thomas Eric Duncan had to apply for a U.S. visitor visa. He did so, saying he wished to travel to Texas to attend his son’s high-school graduation. Mr. Duncan was granted a visa and flew from Monrovia to Brussels to Dulles to Dallas.
    The question is whether the U.S. should, for now, ban the issuance of visas to citizens of the three West African nations where the illness is known to exist. That is what a travel ban would be.
    Those opposed to it have taken to noting that there are no or very few direct flights from the affected nations to the U.S., and that citizens from the affected states can fly to other nations first, and then connect to the U.S.
    That has nothing to do with the question of a ban. Direct versus indirect flights don’t matter because airplanes don’t catch and die of Ebola, people do. No matter how you get to the U.S. from the affected regions, to get in legally you need a visa.
    There is the charge that a travel ban would isolate the three nations. But why “isolate”? First, we are only talking about U.S. travel; we are talking about keeping citizens of the affected nations from entering the US. Help can and would continue to go into those nations. Charter planes certainly could and would go in. Other airlines might too. Health workers would continue to go in, as would supplies of all sorts.
    On returning from the nations in question, U.S. citizens and others would presumably have to go through a quarantine. But health-care volunteers, of all people, wouldn’t let that stop them.
    The president, in his Saturday address, argued against a ban: “Trying to seal off an entire region of the world—if that were even possible—could actually make the situation worse.”
    Well, no one has called for trying to “seal off” anything, not to mention “an entire region of the world.” This is just the president trying to paint those who oppose him as frightened and delusional.
    And how would a ban make the situation worse? The president: “It would make it harder to move health workers and supplies back and forth.” But again, how? Why? Health-care workers would continue to go in.
    “Experience shows that it could also cause people in the affected region to change their travel, to evade screening, and make the disease even harder to track.” This appears to be wordage in pursuit of a thought. If citizens of the three nations need a visa to come here, and are not given those visas, exactly what does the president think they will do to harm themselves, their countries, or us? Duncan himself, in fact, evaded screening even with a visa: He failed to self-report having been near Ebola when asked about it at the Monrovia airport.
    Nor will the new screening at U.S. airports prove an adequate replacement for a ban. Those carrying the virus who show no symptoms will breeze through, as Duncan did.
    What will help keep people with Ebola from entering the U.S. is denying U.S. travel visas to those from the affected countries.
    Some critics, finally, say that a ban won’t work 100%. Let’s posit that. But if it works 78%, or 32%, isn’t it worth it?
    The burden is on those who oppose a ban to make a hard, factual, coherent and concrete case. It is telling that so far they have not been able to.
    * * *
    On the appointment of Ron Klain as the president’s so-called Ebola Czar, much is made of the fact that he lacks a medical or scientific background. I’m not sure that’s important.
    More significant is that he is a longtime, hard-line Democratic Party operative who is known more for spin and debate prep than high-level management. That suggests the White House sees the Ebola crisis as foremost a political messaging problem. The president certainly seems unafraid of appearing to see the problem as a political messaging one. His primary focus when choosing Klain looks self-indulgent: “Who do I trust and like to work with?” as opposed to “What does the public require and the situation demand?”
    Ebola is going to prove spin-resistant: In fact, the more you spin down the deeper you’re going to get in the hole.
    A problem with the Klain appointment is that he does not have natural command presence and public authority. The administration blew its initial handling of the crisis. What is needed is a Gen. Schwarzkopf sort of figure who could stand there at the morning briefing and tell you what’s happening and you know he’s telling it to you true. A straight-shooting retired general or admiral, or a civilian—an independent CEO with a public reputation, someone known for getting things done, someone with his own lines of communication to the media and political class. A Mike Bloomberg—someone who doesn’t need you, who can walk away from the job if he doesn’t get the tools and is feared inside because he can walk.
    Someone who is not only bigger than Ron Klain but bigger than Barack Obama.
    Instead, the president appointed a political mover and partisan operator who was played in a movie by Kevin Spacey.
    Why does that seem such a consequential mistake?

    HAL Conference Call and the Dividend

    HAL CEO said that they plan to raise the dividend another  Here is a link to the full transcript.

    A summary excerpt appears below from the CEO of HAL:

    Dave Lesar (CEO):
    "Thank you, Kelly, and good morning to everyone.
    I can tell you, I am really pleased with our third quarter results. Even with all the noise out there this quarter, on things such as Russian sanctions, disruptions in Libya and Iraq, the supply chain challenges we faced, and customer delays in the Gulf of Mexico, I believe we met these challenges head-on, fought through them, and were successful. And I'm really proud of our employees who made it happen.
    Now here are the headlines; record Company revenue of $8.7 billion. We also delivered industry-leading revenue and operating income growth, both sequentially and year-over-year, once again outgrowing our peer group.
    New quarterly revenue records for both North America and the Eastern Hemisphere, with double-digit sequential revenue growth in Latin America. And one I know you're going to want to hear is that the exit rate for this quarter for North American margins was over the 20% margin mark, a major milestone in delivering our Analyst Day commitment to you, our shareholders.
    In addition, our job board in North America remains sold out, and we are delivering new stimulation equipment that will allow us to add incremental work in the fourth quarter with no negative impact on our margins. We believe that Macondo cases is essentially over for Halliburton , based on our settlement and the judge's ruling in the litigation.
    And lastly, we continue to focus on delivering higher shareholder returns to you. This quarter we repurchased an additional $300 million in stock; and our Board of Directors has approved an additional 20% dividend increase, meaning we now have doubled our quarterly dividend over the past two years."
    And this blurb from the CFO:
    "We announced today that our Board of Directors approved a 20% increase to our quarterlydividend, from $0.15 to $0.18 per share, resulting in a cumulative 100% increase to our quarterly dividend over the last two years. As previously stated, our intention going forward is for our dividend payout to equal at least 15% to 20% of our net income."

    Friday, October 17, 2014

    Chaos Update

    I'm just kidding.  It's not Chaos, well, I mean the market action the past few weeks is just a case of jitters in my opinion.  The way our government is handling the growing Ebola crisis, now that's chaos.  Why we don't temporarily stop incoming visitors from Ebola countries is a mystery to me.  I can only guess that our leaders think it isn't PC?  Oh well, I'd rather think about the market.

    The chart below shows the YTD return of the S&P 500 (red line) vs. the Chump IRA (blue line).  As you see from the graph, we've now endured four straight weeks of declining returns.  And while it may seem like the bottom has fallen from the stock market, the market has only dropped around 6.5%, not even the "10 percent" correction that everyone has been calling for over the past 2 years.

    So keep things in perspective, this is not a big deal, and we are not entering a recession.  Use the lower prices to add to undervalued positions you hold, or start new ones.

    The Chump YTD returns are starting to gap again with the S&P, not falling as hard in this downturn.

    I've been paying close attention to my watch list during this minor correction, but NOTHING has hit my estimated buy price based on fair value, so I'm a little frustrated.  Regardless, I needed to build a some cash in the event I'm ready to buy, so I closed my positions in VMI and John Deere (DE).

    Not that I don't like VMI and DE, but both have been lowering guidance, and are forecasting declining EPS for at least the next 18 months.   Both are subject to farm prices and agri-business spending.  I also have a position in ADM, which I'll keep.   I decided to close these out, and look for companies that are growing earnings now, pay a growing dividend, and are undervalued.

    In a previous blog, I mention Alaska Airlines.  I added ALK to my watch list a few months ago, and with the Ebola news, airlines got beat up as a group.  Seemed like a good time to "swap" my VMI for ALK...better dividend, better valuation, nice growth in EPS.  As the market has continued to correct, I've added to the position.

    I also used some of my sale proceeds to add to my positions in HAL and KMI.  The entire energy sector is getting beat up, and good companies like these are on sale!  HAL pays a small dividend, but is growing it rapidly, and is forecasting 25% EPS growth over the next several years.  KMI pays a great yield (see blog from yesterday for more info).

    I still have some cash on hand, so I'll wait to see what next week brings.

    Wednesday, October 15, 2014

    Kinder Morgan (KMI)

    As mentioned in earlier posts, I like KMI, even after the consolidation upcoming with KMP.  KMI is a dividend machine.  Here is a press release today regarding the recent quarter

    Here are the highlights:

    • Increased the dividend from $0.41 to $0.44, a 7% increase
    • Revenue was up vs. last year 9%, as was cash available for dividends
    • After the consolidation, which is on track, the dividend is expected to rise 16% next year from $1.72 to $2.00 (full year)
    • KMI finished up today, and closed at $35.29.  The current dividend yield is around 5%
    Here is a FASTGraph for KMI, based on FFO (funds from operations) instead of EPS, which is a more relevant number when looking at KMI:

    Due to a hit to cash this year caused by $70B merger, the hit a top of around $40....with the current market sell off, the stock is down nicely, and offers a nice buying opportunity, with a "guaranteed" 16% raise in the dividend next year.  

    Here is another recent "bull" case article from SA:



    Tuesday, September 23, 2014

    Stock Swap Today (VMI & ALK)

    I've been reading a bunch of negative press regarding VMI recently.  In parallel, I've been reading a lot of positive press about Alaska Airlines (ALK).  So I started comparing the two.....

    In summary, I think the growth prospects for ALK over the next two years, far exceed those for VMI, and they pay the same dividend.  So I closed VMI today, and bought a 2/3 position in ALK...around $44.73/share

    Here is the FASTGraph snapshot for ALK:

    Great earnings growth, they recently added the dividend, and the stock is nicely undervalued today!

    Friday, August 29, 2014

    Some Thoughts on Portfolio Performance

    Several weeks back, I started looking at performance of the Chump IRA vs. the S&P on a week to week basis, to see if I could learn anything interesting.  I read lots of articles where authors state that they have different goals, and that they don't use the the S&P benchmark, or any other, to measure their performance.  The argument goes something like this,  "My goals are different, therefore I don't benchmark.  As long as the portfolio is on track doing its job, I leave it alone, and I'm happy."  Certainly, I'm over simplifying, but this is the gist.

    To this investor I say "NONSENSE!"

    **Unless you are retired, and need a nice yield from your portfolio to supplement your income**, you should be growing your "pile" of assets as fast as you can, as much as you can.  Track your performance, learn and improve, and failing improvement, put all your money into a low cost Vanguard ETF like VOO (S&P 500).  It's just that simple.  If you are consistently trailing the S&P over every period you measure, stop, and redeploy.

    The whole point of this blog is to see if I can beat the S&P 500 over different periods of time.  If I continually fall short, I will liquidate, and put the money in ETFs until I retire.  End of story.

    This comment may seem like heresy to some of my dividend growth investment friends, but it isn't.  I love dividend growth stocks, and I'm invested almost exclusively in them.  However, I've also been beating the S&P 500, collecting more yield for reinvestment, and enjoying a lower than 1.0 volatility (beta) in the portfolio.  I do this by picking undervalued stocks in which to invest.

    Here is my YTD total performance for the past several weeks vs. the S&P:

    I'm kind of angry this week, because the S&P caught me, and stands slightly above the Chump IRA at 9.87% vs. Chump at 9.80% for YTD total return.  As you can see from the graphic, I went into week 31 with a nice 300 basis point lead, then fell short of my benchmark in every week since.  I know that this can change quickly, and I had some bad luck the past couple of weeks, especially with WAG, but this graph serves as a warning, so I'm going to try and learn a few things, take a deep dive into my holdings, and come back with a strategy to re-build my lead! So there!



    Today, A Political Message

    This is a very good article by Wayne LaPierre at the NRA.  Give it a read.

    Chump is "long" NRA!

    Tuesday, August 26, 2014

    Good Article on Valmont Industries (VMI)

    Nice write up and comments regarding VMI on Seeking Alpha here:

    I'm long VMI in the Chump IRA, here is an up to date FASTGraph:

    The stock is selling at a decent entry point today.  They have a small, but growing dividend, and I like their long term prospects.



    Friday, August 15, 2014

    More on KMI and KMP

    As discussed previously, all the Kinder Morgan entities are merging into KMI.  I own KMI in the Chump IRA, but also have a full position of KMP in my taxable account.  So I'm wondering, should I sell my KMP while the shares are up, or should I wait for the deal to complete?

    Here is the math attached to the deal: 1 KMP unit = 2.1931 shares of KMI + $10.77

    Using prices from right now, KMI = $41.40, and KMP = $98.78

    Solving for KMP in the above equation = 2.1931($41.40) + $10.77 = $101.56, which around $2.75 more than I get selling today, or roughly 2.5% higher.  The difficulty comes with the two moving parts....if the price of KMI drops, my payout declines, and if the price of KMP rises, it might make sense to sell my shares.

    I'm tempted to sell my KMP shares and be done with this, but I want to investigate the tax implications of selling now vs. holding until the deal closes....



    Monday, August 11, 2014

    Kinder Morgan News

    Kinder Morgan made headlines this weekend with the news that all four entities will combined into KMI, which I own in the Chump IRA.  From the Wall Street Journal:

    Kinder Morgan to Consolidate Empire

    Gas-Pipeline Company Says Master Limited Partnerships Structure Has Become Too Unwieldy

    Updated Aug. 10, 2014 7:37 p.m. ET
    Company founder and Chief Executive Richard Kinder, pictured in 2009 Reuters
    Kinder Morgan Inc. KMI +7.20% is consolidating its vast oil-and-gas pipeline empire into a single company in a $44 billion deal amid investor worries about the enterprises' growth prospects.
    The reorganized company will abandon the financial structure it helped popularize in the late 1990s: the master limited partnership. These complex tax-oriented offerings have caught on among energy companies facing substantial investments in infrastructure because of the U.S. oil and gas boom.
    But Kinder now is so big that the MLP structure is limiting, said Richard Kinder, the companies' founder and chief executive. Combining all four of its publicly traded units into one corporation, he said in an interview, "will allow us to further expand the reach of the kind of projects we can do."
    Acknowledging the difficulty that companies like his are having building big new pipelines because of regulatory scrutiny and public opposition, Mr. Kinder suggested that the newly consolidated Kinder Morgan would be able to move aggressively to acquire rivals and to expand its existing 80,000 miles of pipelines.
    Kinder Morgan said it would pay about $40 billion in stock and $4 billion in cash to investors in the other three related companies. The company also will assume $27 billion in debt, bringing the total value to approximately $71 billion, Kinder Morgan said.
    Master limited partnerships basically give special tax breaks to companies that get almost all their revenues from natural-resource businesses. That typically has meant pipeline companies, which charge toll-like fees to move oil and gas. The partnerships don't pay corporate taxes to the federal government, distributing most of their cash flow to shareholders—and to the general partners who run the MLPs—in dividend-like payments.
    These payouts have made them increasingly popular with investors, especially baby boomers hungry for high yields in an era of ultralow interest rates. Energy companies have also embraced them as a way to raise equity and issue debt backed by specific assets such as pipelines.
    But investors have been concerned that with a $37 billion market value, Kinder Morgan's flagship partnership, Kinder Morgan Energy Partners KMP +15.75% LP, is so big that it is difficult for the partnership to achieve substantial revenue growth—and thus increase its distributions to shareholders. Analysts also have cited the hefty payments—about 46% of its cash—that the partnership has been making to the publicly traded company that runs it, Kinder Morgan Inc. Mr. Kinder owns 23% of that company, though his stake will decline to about 11% after the consolidation.
    "The biggest problem facing Kinder Morgan is how to maintain growth," Morningstar analyst Jason Stevens wrote last month. To increase its distributions by a projected 5% to 6%, he continued, Kinder would have to put "$3 billion-$4 billion to work each year on attractive projects, a daunting task for any firm."
    Kinder Morgan's interrelated companies include a smaller master limited partnership, El Paso Pipeline Partners EPB +19.37% LP, and Kinder Morgan ManagementKMR +22.24% LLC, which has a slightly different financial structure intended to attract institutional investors.
    "This is a very simple and elegant solution to a problem of complexity," said Robert W. Baird analyst Ethan Bellamy. "I think ultimately this will prove to be a very good deal." He doesn't think other master limited partnerships will follow in Kinder Morgan's footsteps because other companies still benefit from the financial structure as a way to attract investment.
    After the deal announced Sunday is completed, only Kinder Morgan Inc. will remain. In exchange, owners of the other three other securities will receive a mixture of cash and shares of Kinder Morgan Inc. at premiums ranging from 12% to 16.5%, based on last Friday's closing prices. Each of the stocks has slipped about 5% since late last month, however. Kinder Morgan said it had secured financing for the cash needed to pay its investors.
    Under the consolidation, many individual investors in Kinder Morgan partnerships at first could receive smaller regular distributions, though the investors will also receive an initial cash payment of $4.65 or $10.77 a unit, depending on which partnership they own. The new combined entity will offer a $2 annual dividend that is expected to increase 10% annually through 2020, the company said. The value of the new entity's debt and equity is expected to be $140 billion.
    Mr. Kinder, a lawyer with a penchant for deal making, left Enron Corp. in 1996 after being passed over for the CEO position. He and another lawyer, William Morgan, created Kinder Morgan the next year. They started with $40 million in assets purchased from Enron, which was eager to jettison the staid pipeline business in favor of conducting flashier financial engineering.
    In 2006, Mr. Kinder announced a plan to take Kinder Morgan Inc. private in what was then the largest management-led buyout of a public company. Five years later, the company went public again in a large public offering. Later that year, a $21.1 billion purchase of rival El Paso Corp. made Kinder Morgan the largest natural-gas pipeline operator in the U.S.
    U.S. energy production has soared since 2009 because of widespread use of hydraulic fracturing and other technologies that have made it possible to tap energy trapped in shale deposits. Oil output has increased 55%, or nearly three million barrels a day, over the period, while natural-gas production has risen 23%, much of it in parts of the country without sufficient existing pipelines.
    At the same time, getting new pipelines off the drawing board has been tough. Heightened regulatory scrutiny and public opposition have derailed or delayed some of the largest pipeline projects, including Kinder Morgan's proposed Trans Mountain Pipeline to Canada's West Coast. Infrastructure companies including Kinder have increasingly have invested in rail terminals and other equipment so that oil can be shipped by railroad, barge and truck.
    Kinder Morgan's new structure, Mr. Kinder said, will allow the company to move more rapidly to take advantage of the need for more energy infrastructure.
    "What has happened in shale plays across country has stood the transportation network on its ear," he said. "We would look upon this as an opportunity to grow even faster in the future."
    The deal is expected to be completed by year-end, subject to shareholder and regulatory approval.
    —Ryan Dezember contributed to this article.