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    desfam5's Avatar
    desfam5 Posts: 1, Reputation: 1
    New Member
     
    #1

    Apr 14, 2014, 08:12 AM
    EPS and Dividend
    KMP
    Kinder Morgen LP

    if the company is earnings per share eps = $ 3.76 how can the company payout $5.44 as dividend? Where is the extra money coming from?
    ebaines's Avatar
    ebaines Posts: 12,129, Reputation: 1307
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    #2

    Apr 14, 2014, 09:26 AM
    A company can pay dividends that exceed EPS if they have a cash reserve - i.e. they pay the dividend out of retained earnings from previous quarters. Or their cash flow may be greater than their EPS, if they took a write-off that hit EPS but wasn't an actual expense in the quarter, or if they sold off a lot of inventory. Obviously this is not a long-term tenable thing to do, so if the EPS stay depressed you can expect them to cut the dividend aty some point in the future.

    In the case of KMP, my guess is that they're depreciating their oil and gas reserves, which artificially depresses reported EPS. Limited Partnerships are typically designed to show losses, so that the partners can get a nice tax break at the same time as they are receiving dividend payments.
    walt17's Avatar
    walt17 Posts: 335, Reputation: 28
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    #3

    May 28, 2014, 03:47 PM
    KMP routinely borrows money and issues more shares, using the proceeds to fund the dividends.

    When investing in partnerships and REITs check the financial statements and learn where the cash is coming from. Earnings is rarely the whole story with these.

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