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TheStreet Open House

5 Hedge Fund Favorites to Buy This Fall

Stocks in this article: KMI PG JNJ AMZN NWSA

Kinder Morgan

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$40 billion gas pipeline partner Kinder Morgan (KMI - Get Report) has been trading sideways for much of 2012, but hedge fund managers are betting that will change. Hedge funds bought 62.5 million shares of the firm in the second quarter, more than tripling their stake in the firm to $2.6 billion in market value.

A combination of huge size and big dividend income makes KMI a solid defensive choice for the final months of 2012.

>>8 Stocks With Big Dividends, Steady Returns Basically, KMI is a holding company that owns the general partner and incentive distribution rights for Kinder Morgan Energy Partners (KMP), an MLP; in other words, it's an investment vehicle that's designed to maximize distribution income for investors. In more real terms, the KMI owns or has interests in more than 37,000 miles of pipelines and 180 commodity storage terminals spread across the country. That exposure to the midstream commodities business without too much exposure to commodity price swings is attractive, especially as volatility in energy prices continues to be the norm. The firm's acquisition of El Paso this year dramatically increases its size, enabling the firm to keep hiking its dividend payouts for shareholders. Much of KMI's appeal is its status as a corporation rather than an MLP. Because the tax implications are simpler for shareholders, folks looking for a buy-it-and-forget-it pipeline stock have a good options here. Expect the nearly 4% dividend yield to keep climbing too.

I also featured Kinder Morgan recently in " 5 Dividend Stocks Ready to Pay You More."

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