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Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Kinder Morgan Canada Limited (TSE:KML) shareholders over the last year, as the share price declined 75%. That’s disappointing when you consider the market returned 2.2%. Because Kinder Morgan Canada hasn’t been listed for many years, the market is still learning about how the business performs. Furthermore, it’s down 25% in about a quarter. That’s not much fun for holders.
Kinder Morgan Canada isn’t a profitable company, so it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Kinder Morgan Canada grew its revenue by 40% over the last year. That’s definitely a respectable growth rate. However, it seems like the market wanted more, since the share price is down 75%. One fear might be that the company might be losing too much money and will need to raise more. We’d posit that the future looks challenging, given the disconnect between revenue growth and the share price.
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Kinder Morgan Canada the TSR over the last year was -13%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Given that the market gained 2.2% in the last year, Kinder Morgan Canada shareholders might be miffed that they lost 13% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Notably, the loss over the last year isn’t as bad as the 25% drop in the last three months. This probably signals that the business has recently disappointed shareholders – it will take time to win them back. Importantly, we haven’t analysed Kinder Morgan Canada’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.