Trades – Sold BP PLC (BP) and Purchased Kinder Morgan, Inc. (KMI)

kinder morgan logo - KMI purchase

As I’ve mentioned previously, while in the accumulation stage of my dividend growth portfolio, I’d prefer to reinvest my dividends. Once I’ve reached a point of $2-3,000 dividends a year, I will look to stop this and use the dividends to expand into additional positions. Because of my current plan to reinvest my dividends, I was disappointed when I was unable to reinvest my BP dividends when paid back in April.

As a result my desire to reinvest my dividends, I looked to sell my BP holding. Additionally, prior to selling, I looked for a position that would be both fairly valued, as well as one in which dividends would be reinvested. At the very end of April, beginning of May, an opportunity presented itself where I could sell my BP holdings for a gain, and reinvest the proceeds in KMI. Below are the details of these transactions.

Sold 30 shares of BP PLC (BP)

At the very end of April BP rose in price to the mid $43 dollar range. Given my cost basis of $42.90 per share, I took this opportunity to sell for a small gain in addition to changing my dividend reinvestment ability. So with that, on April 30th, I exited my BP position at a price of $43.58 per share, netting me $1,302.41 in proceeds after commission.

Purchased 35 shares of Kinder Morgan, Inc. (KMI)

As I mentioned above, I utilized the proceeds from the BP transaction to purchase additional shares of KMI. On May 1st, I picked up 35 additional shares of KMI at a total cost including commission of $1,353.15. This gave me a cost basis of $38.66 per share for these additional shares. Given that I already owned 55 shares at $37.47 per share, my overall cost per share was increased to $37.93.

These two transactions have had the overall effect of lowering my projected 12-month forward dividends as KMI is yielding less than BP. That being said, KMI recently increased their dividends, although my latest transaction missed the ex-dividend date with this increase. Overall, my projected 12-month forward dividends decreased from $1,045.93 to $1,041.31. This was not as much as anticipated as I have also factored in the increase in dividends from $0.37 to $0.38 per share. My yield on cost for my KMI position is now 4.01%.

A quick business summary on KMI from Bloomberg:

“Kinder Morgan Inc. is a pipeline transportation and energy storage company. The Company owns and operates pipelines that transport natural gas, gasoline, crude oil, carbon dioxide and other products, and terminals that store petroleum products and chemicals and handle bulk materials like coal and petroleum coke.”

Dividend Monk wrote up a great analysis on KMI which can be found here.

I have updated my Equity Investments page with this transaction.

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Comments

  1. You’ve got to do what’s right for you because you’re the only one that has to deal with your investment goals. I wouldn’t be too worried about not being able to reinvest dividends even at this early stage of your portfolio. As long as you’re having fresh capital to invest on a monthly basis then it will have the same effect. Plus reinvesting dividends into higher yielders can quickly throw the weighting out of whack. I’ve turned the DRIP off for a few positions and will eventually turn if off for all save for the KO, PG, JNJ… companies.

    • JC, you are absolutely right that adding capital is the key to this process. Because I am spread with a few different investments, some not covered on this blog, I won’t be adding capital as quickly as I might like for tracking purposes. With that in mind, for me it is better to keep up the direct reinvestments. As far as the high yielders go, I am planning on moving some of my PSEC investment into other avenues as it obviously will gain portfolio share quite quickly.

      Thanks for stopping by JC!

  2. W2R, Shame about the BP investment, but understand the reason for the trade. I used to DRIP my investments for the first 4-5 years, before doing more selective reinvestment. I personally think BP still represents good value, the high yield reinvested across some other positions can accrue dividend income quickly.

  3. If you are reinvesting dividends from the Kinder pipelines, why aren’t you using the higher yielding Kinder securities?

    • With Kinder, I am attracted to the much higher incentive distribution rights (IDR) that KMI receives from each of the partnership, ensuring that every little increase in distributions is maximized at the highest level. Additionally, since this purchase is housed in my Roth IRA account, the taxable benefits of owning an MLP are marginalized in an already tax-efficient account.

      Thanks for the question!

Trackbacks

  1. […] Write your own reality mentioned his trade out of BP into Kinder Morgan given an inability to DRIP BP.  Automatic dividend reinvestment can be a great way to grow dividend income fast. Its what I did when I first started and can make a material difference to dividend income over time. […]

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