1 Stocks I wouldn't touch with a 10-foot pole.

I almost exclusively invest in dividend paying stocks in order to build an income stream that I can rely on when I retire someday. It's not a hard and fast rule, but I don't like to own companies that cut their dividends. But what I really don't like are companies that break their promises, especially where the promise is related to dividends.

That's why Mrs. Koon.Kinder Morgan (NYSE: KMI)The dividend yield is as high as 6.2%, but I would never buy it for that reason.

Kinder Morgan's business isn't bad.

Kinder Morgan is one of the largest midstream energy companies in North America. It has a portfolio of energy infrastructure assets that are difficult, if not impossible, to replace or displace. It is also sufficiently molded to be an industry player, which is very important today, as the opportunities for ground-builders are limited. From this perspective, Kinder Morgan is not wrong.

The company's financial strength is strong, with its assets and liabilities achieving investment grade ratings. Moreover, on the dividend side, Kinder Morgan has been regularly increasing its dividend every year recently, and in 2023, the distributable cash flow to dividend coverage ratio is 1.8x, which is very good.

In fact, if you just look at the company's current position, investors could reasonably find it attractive. But I'm a big fan of dividend stability, so the company's 2016 dividend cut gives me pause. However, there is much more to the problem than first meets the eye.

No one likes to cut dividends, but broken promises are worse

I can accept a board's decision to cut the dividend if it has a good reason for doing so, such as a spin-off of the company or a sale of assets that results in a significant reduction in revenues and earnings, or even an unforeseen bad event, such as a global pandemic. What I don't like, however, is a company that makes bold promises and then misses them by a mile.

In the case of Kinder Morgan, this commitment was made on October 21, 2015, where Koon stated that "while we are at the beginning of the 2016 budget process, we currently anticipate that the declared dividend for 2016 will increase by 61 TP3T to 101 TP3T from $2.00 per share in 2015 ". Less than two months later, on December 8, 2015, the Company announced that "its Board of Directors has approved a plan under which it expects to pay a quarterly dividend of $0.125 per share ($0.50 per annum) to Bria's common shareholders."" Instead of the promised 10% increase, investors got a 75% dividend cut.

To be fair, Kinder Morgan had to choose between investing in growth-oriented capital and paying a dividend because of the poor state of the energy industry at the time. In the long run, the company made the right choice. But if you're a dividend investor like me, you may have a trust issue when you validate it.

Sadly, Kinder Morgan has done so again in 2020. The company had an aggressive dividend growth plan in place when it started to re-increase its dividend in 2018. That plan included a dividend increase of 25% in 2020, but due to the pandemic, the board opted for 5%. koon noted that "the board remains committed to increasing the dividend to $1.25 annualized, as we projected in 2017, when the circumstances were very different than they are now." As of the first quarter of 2024, the annualized dividend is $1.13 per share, still well below the target set for 2020. Considering the uncertainty of a coronavirus pandemic, the company may have once again made the right choice, but once again, credulous investors were disappointed.

There are other options.

If Kinder Morgan had simply failed to deliver on its promises in 2020, I wouldn't have cared at all. But with the dividend cut in 2016, I can't look at this company in the same light anymore.

Instead, I hold its counterpartEnbridge (NYSE: ENB)The company has increased its dividend for 29 consecutive years. You may also want to check out.Enterprise Products Partnersfirms(NYSE: EPD)It has increased its dividend for 25 consecutive years. Most interesting: both Enbridge and Enterprise currently have higher yields than Kinder Morgan!

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Reuben Gregg Brewer owns shares of Enbridge Corporation.The Motley Fool has positions in Enbridge and Kinder Morgan.The Motley Fool recommends Enterprise Products Partners.The Motley Fool has a disclosure policy. The Motley Fool has a disclosure policy.

1 Stocks I Wouldn't Touch If I Were 10 Feet High was originally published by The Motley Fool.