"More than two years after selling Kinder Morgan Energy Partners (NYSE: KMP) for a 60% gain, we are once again buying the shares," says Bill Martin in his FindProfit advisory newsletter.
He explains, "A heavily diversified operator of pipeline and other energy-related assets and the largest master limited partnership (MLP) in the U.S., KMP currently has a 6.85% yield that we think will grow to 7.5% or greater in 2008 based on the current stock price.
"This growth will be powered by a deep portfolio of new growth projects, most notably the company's Rockies Express pipeline, Mid-Continent Express Pipeline, and Trans Mountain pipeline.
"KMP is extremely well positioned to benefit from the prime sources of North American energy supply growth over the next several years, including the Barnett Shale in Texas, the Rocky Mountains, the oil sands of Canada, and the new LNG import facilities in Texas and Louisiana.
"KMP also should benefit from higher oil prices over the next two years in its CO2 segment. Together, these projects should enable KMP to grow its distribution payout rate by 7-9% per year over the next several years.
"The downside of KMP is that its general partner receives 50% of any increase in the company's distributable cash flow. This, along with the company's large size, makes it hard for the company to radically grow its distribution payout rate.
"Due to KMP's slower growth rate and higher GP rate, the stock typically trades at a discount to its peers, meaning it offers a higher yield. However, we do believe that the partnership offers capital appreciation upside potential of 5-7% per year.
"This, plus the 7-7.5% dividend over the next few years, could generate overall returns of 12-15% per year. In a falling interest rate environment, we think that's an attractive potential return, particularly for a company with less economic sensitivity."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment commentary and favorite stocks of the nation's leading financial newsletter advisors.
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