As part of its special section on executive pay yesterday, TheWall Street Journal featured an interview with one of the most, ahem, reasonably compensated CEOs in the investing universe: Kinder Morgan's
Kinder, a former president of Enron, exhibited none of the avarice typical of subsequent occupiers of that post when he left to co-found natural gas pipeline giant Kinder Morgan. His first annual paycheck totaled $1 (minus federal withholding taxes of $0.07). And he has not had a raise in the past seven years. Nor a bonus. Nor a single stock option grant.
In truth, the man does not need any of the above. He owns 20% of Kinder Morgan's stock, and with each share of Kinder Morgan paying a dividend yield of roughly 3.5%, that makes for an annual income of more than $50 million.
Needless to say, in a WSJ issue that spent a fair amount of time discussing shareholder revolts against, well, revoltingly excessive levels of executive compensation, the interview with Kinder glowed with a saintly light. But with his namesake company due to report quarterly results any day now, let us peer through the glow and evaluate just how much Kinder Morgan shareholders are getting for their $1 in CEO compensation.
Valuation-wise, Kinder Morgan looks right on the money. Its trailing P/E ratio of 20.3 is a bit cheaper than the S&P 500's 22.8. Its enterprise value-to-free cash flow ratio is a sturdy 26. Factor in a five-year projected growth rate of 12% and Kinder Morgan's EV/FCF/growth ratio is just a hair over that of the market at large, at 2.2.
And remember, each share of the company's stock brings with it a hefty 3.5% dividend. That is roughly twice the going rate for the market as a whole.
Taking all of that into consideration, investors should think about giving Kinder Morgan a serious look. The stock is fairly valued by at least two metrics, and it sports a dividend that already bests the market's dividend yield by a factor of two. Moreover, any decline in the stock's price will only swell that dividend yield.
In my book, that makes Kinder Morgan a good defensive play against a market downturn.
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