Best Stocks For Dividend Investing

I have decided to start a new series on the best stocks for dividend investing. This series will take a look at the best yields that the market is currently serving up. I will look for the best dividend payers in every sector of the economy.

There is a stock in the energy sector that is currently rewarding investors with a 6.2% dividend yield. Investors not only get to own a part of a sector that has been on fire recently but they get a nice dividend to boot. Crude oil crossed over $105 a share yesterday and continues to maintain its momentum. You can get a part of the energy market too by owning a piece of this Texas company.

The company in question is Kinder Morgan Energy Partners (KMP).

Kinder Morgan Energy Partners is a master limited partnership so income generated will be treated as partnership income. Master limited partnerships are basically just publicly traded partnerships. The have the tax benefits of a limited partnership but are traded on public exchanges. This means that you will receive a K-1 instead of a 1099 DIV form. The income will be treated as partnership income and not dividend income.

Investors are paid through quarterly required distributions. These have to be paid for the master limited partnership to stay in existence. MLP’s typically pay some of the highest dividends around.

Kinder Morgan Energy owns all of the pipelines of Kinder Morgan Inc. The pipelines transport petroleum oil and natural gas. Kinder Morgan is the largest independent owner and operator of petroleum-product pipelines in the United States of America. Kinder Morgan operates in the following five segments

  • Products Pipelines
  • Natural Gas Pipelines
  • CO2
  • Terminals
  • Trans Mountain

This stock is not a value play. Kinder Morgan trades at 38 times earnings in an industry that average 9% annual growth. It’s a pure dividend investment.

Kinder Morgan is so attractive because of its $4.52 annual dividend. The company’s stock is currently yielding 6.2% which may seem high but is actually below the 7.1% historical yield. This is not a company that you will need to hold for the short term and dump. Kinder Morgan is a long term stock holding. The company has a wide economic moat due to its vast pipelines and operates in an industry with major regulatory hurdles for new entrants. Kinder Morgan generates tremendous amounts of free cash flow.

Kinder Morgan Partners is a stock that any serious dividend investor should take a look at.

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16 Responses to “Best Stocks For Dividend Investing”

  1. avatar krantcents says:

    As I get older, I am increasing dividend stocks and funds for income. This is a good idea! Is this mostly a natural gas play?

  2. avatar Jason says:

    I tell all my clients to reinvest their dividends. Put away money that they can invest and let the dividends reinvest so they have more buying power. Great article man.

  3. avatar sonya says:

    I never thought much about investing in energy before but after reading your post
    I’m giving it some serious consisderation .

  4. Sounds like a great company but filing taxes at year end could be a pain because of partnership income.

  5. That is an awesome dividend! Great find Mark!

  6. avatar Ahmed says:

    KMP for Canadian investors is not so great because we are taxed at a much higher rate because it is a MLP. The tax rate for MLPs is 35% vs. 15% for standard corporations. However, Kinder Morgan Inc. (KMI) is another option. This is the C-corp and the distribution is a dividend.

  7. avatar aj says:

    I like KMP but i think that a PER of 35 (today) is too much to pay for any company…In theses day’s we can find good dividend company for less!
    EDP, a Portuguese stock with more than 50% of profits coming from abrod, has a yeld of 6,18% and a PER of 9,33!
    It has solid numders! Thake a look!

  8. Love the company. Good choice. I don’t know if I would get in at its current price though.

  9. I know many fellow investors that are hot for KMP, but I tend to stay away from MLP’s due to the tax implications and other complications. I do like KMI though. Seeing as how it just recently became public again, however, I will wait and see.

  10. avatar Mike says:

    I’ve owned these (not KMP though) for some years. Let me give you the good and the bad. First, don’t judge these companies by P/E. P/E is relevant for assessing regular corporate stocks, not partnerships (like KMP) or other investments including REITs. The way to judge these companies is by their multiple to distributable cash flow. (This is very similar to Buffet’s own creation – owner earnings).

    Most of the partnership cash that you receive is called ‘return of capital’. This means that you are getting your own investment money back and it’s not immediately taxable. (Yeah, I know, it’s kind of screwy but that’s how it works). To give you an idea of how this works, consider an MLP that pays a 7% dividend. Perhaps 3/4s of this won’t be immediately taxable, this has the effect of increasing your total yield. In this case, it would come out to be almost a 10% effective yield.

    Now for the downside. Because you are a partner, you aren’t shielded from the tax filing requirements. This means that you could be on the hook for to file tax returns in every state that the partnership does business (for most people this isn’t an issue because you are under the income thresholds).

    So, these are potentially great investments, but don’t tread lightly.

    Mike

  11. avatar james moylan says:

    I have a web site where I research penny stocks and stocks under ten dollars. I am a astute value investor. I do not believe that warren buffett is the value investor he was years ago if he was he most certainly would have caught the spectacular comeback of ford motor. the stock was trading at just 1 dollar a share two years ago the shares trade at 16 dollars today and the company is well on its way to becoming the leading world automobile company. another example is apple computer the shares traded at just 5 dollars in 1998 today they trade at 340 dollars. he did not see this one either their are numerous other examples.
    .

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