Market Pulse: A tale of two stocks
Kinder Morgan (KMI) and Tesla (TSLA) couldn’t be more different.
One is an energy infrastructure company while the other is a green company (although I’ve never heard what will happen to all the used batteries). One has a relatively stable earnings stream while the other has ground-breaking technology. Their stock prices are about unchanged over the last two years, but for investors even their returns aren’t the same. Let me explain.
Kinder Morgan is the largest pipeline company in the U.S., but one can make a case that it should be classified more as a utility. That’s because oil and natural gas flow through the pipelines no matter what is happening to the economy. Environmentalists don’t like pipelines, but is transporting oil on a truck any safer?
Tesla is a disruptor. Before Tesla, electric cars were goofy. Now they’re cool. The Tesla Model 3 was the fourth best selling car in the U.S. in the fourth quarter. At the same time, Elon Musk’s tweets can be embarrassing, and he infuriated customers who bought the Model 3 in 2018 when he lowered its price this year.
If you purchased Tesla stock two years ago you’d have seen it rally to $385 and drop to $250. There would be exciting stories like promises of Tesla trucks and a new Roadster, but also negative stories like pot smoking and SEC probes. Through it all, your investment would be about unchanged.
If you purchased Kinder Morgan in early 2017 you would have seen mostly selling followed by a recovery. There would be positive stories such as Kinder’s strong suit in infrastructure in and around the Permian Basin as well as heavy insider buying. Then there are negative stories on pipeline expansions. In the end, the stock price from 2017 to now is mostly unchanged.
Which would you rather have owned? Because investors in Kinder had to withstand a 20 percent loss, many people would say they would have rather owned Tesla. But Kinder was the better investment. Why? Dividends.
Kinder Morgan now yields 5 percent after this year’s dividend boost to 25 cents quarterly from last year’s 20 cents last year. Plus, it pays qualified dividends that are taxed at a lower rate.
The lesson: Owning a quality stock that pays a good dividend and increases it often takes the pressure off the timing of your investment purchases. Even when your entry point is mis-timed you are rewarded with dividends until your investment proves you right.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.