BillGunderson

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Kinder Morgan KMP, -1.77% continues to be a large holding here at my money management firm, and why not? The stock continues to hit new highs, pay fat dividends, and it is still one of the best examples of a growth and income stock that I can find in the entire market.

So many investors make the mistake of buying a stock just because it offers a nice dividend yield. What they fail to realize is that, over the years, many of these stocks have not delivered any capital appreciation along with those dividends.

AT&T T, -1.15%  would be a good example. Over the last 10 years, AT&T has delivered an average total return of 3.7% to investors. The current dividend yield is currently 5.8%. Take away the dividend and the stock has gone backwards over the last ten years. Over the last five years, AT&T has delivered a total average return of just 2.6%. Again, take away the dividend and you have capital depreciation.

Verizon VZ, +0.05%  would be yet another example. Over the last 10 years the stock has an average total return of 3.3% per year. The current dividend yield is 5.2%. Take away the dividend and you once again have negative stock growth. Over the last five years, the stock has delivered 6.6% per year, so you have had just a little bit of capital appreciation along with your income.

Now, one more example of dividends without growth: Eli Lilly LLY, +0.14% currently offers an attractive dividend yield of 5.0%. The stock has averaged an annual average total return of -2.9% per year over the last 10 years. Just think where the stock would be without the dividend. Over the last five years, Lilly has gone backwards by 1% per year, and that includes the dividend. The same could be said about Pfizer PFE, -0.48% and Bristol-Myers Squibb BMY, +0.11% These stocks also currently offer attractive dividend yields, but capital appreciation has been absent for years.

Now, the argument that I hear all of the time is, what do I care about the stock price, I am still being paid my dividend. Does this make any sense? What if you bought a CD at the local bank and got paid your dividend, but lost 10% of your principal? You would not be very happy at all.

The other argument I hear is that, I will get paid to wait while I own my AT&T stock. How long do you want to wait? The stock has delivered zero capital appreciation over the last 10 years!

Now let’s look at a sharp contrast to the aforementioned stocks. I have long been an owner of Kinder Morgan Energy LP KMP, -1.77% The stock has a phenomenal track record of dividend increases along with capital appreciation over the years. Take a look at the total performance of the stock over the years:

Kinder Morgan has delivered a total average return of 16.7% over the last 10 years. The current dividend yield of the stock is 5.3%. As you can see, the stock has delivered some very nice growth along with those dividends during that period.

Over the last five years, the stock has delivered a total average return of 19.5%, and over the last three years, the stock has delivered a total of 29.8% per year.

Kinder Morgan is also linked to a commodity that has been going up on price over the last many years. I believe that this commodity should continue to go higher in the years to come.

There are many stocks out there offering 4% or higher dividend yields right now. Why not check out the total return of those stocks over the years? Capital depreciation or getting paid to wait are not good things. Kinder Morgan is one of the best examples of a growth and income stock that I can find in the entire market.

Bill Gunderson is long Kinder Morgan.