Question:
I’m looking for advice on Kinder Morgan Energy Partners, L.P. (NYSE: KMP). I received about 12% in dividends last year, but would like your advice.
Answer:
KMP, a master limited partnership, is a pipeline transportation and energy storage company. Master limited partnerships (MLPs) have very favorable tax advantages; however, we feel those tax benefits may be in jeopardy in the upcoming political season. This is the reason we have never warmed-up to master limited partnerships as investments. MLPs also have a reputation for being a nightmare, when you need information for filing taxes on time.
KMP has been around many years, and has defied all preconceived notions of MLPs. The company currently offers a 6% dividend; however, we wouldn’t buy it now as it appears a bit pricey. When MLPs come across markets where capital expenditures rise, the dividend can be in jeopardy of being cut. Currently, high oil prices offset the capital expenditures, but KMP has cut their dividend in the past.
Question:
What does your crystal ball say about Research in Motion Limited (NASDAQ: RIMM)? Does this company have a future? The stock has been demolished. Is it worth speculating on, or do you think this would be a waste of money? Any insights would be greatly appreciated.
Answer:
The company is speculative, but we believe there are reasons for the speculation. The designer, manufacturer and marketer of wireless solutions has zero debt and $5 in cash per share. Unfortunately, the technology company has seen its market cap drop nearly in half since September 2011. The conventional wisdom indicates that consumers are leaving the BlackBerry platform for Apple or the Android devices, but the company still has a solid market base. On a scale of 1 to 10, with 10 being very speculative, we would rank RIMM as a 6. We feel that somebody will eventually buy the company.
Question:
I have about $5,000 tied up in Abbot Labs right now. It’s about 7% of my total portfolio. I don’t mind holding it as it has done well since I bought it, but I wanted to see if you had any opinions going forward.
Answer:
Abbot Laboratories (NYSE: ABT) recently split into pharmaceutical and medical devices, which we feel was a decent move for the company. However, we also feel the market has not realized the value in this move as much as it could have. We suspect the overall volatility of the markets has held back the pop in stock price ABT was looking for with this news. The company currently pays a 3.5% dividend and we suggest holding this investment. However, we recommend that you trim the holding to less than 5% of your total portfolio.
Question:
I’m looking at both Aaron’s Inc. (NYSE: AAN) and Rent-A-Center (NASDAQ: RCII). Do you prefer one over the other?
Answer:
We think Aaron’s Inc. is a high quality and well-run company. The business model of lease ownership, and lease and rental of furniture, appliances and consumer electronics brings in a high margin and great profits. The company has had a good track record for many years, and has a PE that is in line with the market. The company’s growth rate is higher than the overall market and it is reasonably priced. We suggest Aaron’s Inc. over Rent-A-Center.