Kinder Morgan (KMI) recently announced that will cut its dividend payments 75% – from $0.51 a quarter down to $0.125 a quarter.

Sadly, much of Kinder Morgan’s stock was owned by retail investors; specifically dividend investors and retirees.

Note:Kinder Morgan was not in the Sure Dividend universe as it didn’t have 25+ years of steady or increasing dividends.

The company had a ‘shareholder friendly’ reputation, with slogans like:

“Promises Made, Promises Kept.”

And:

“Run By Shareholders, For Shareholders.”

With slogans like that, you’d expect Kinder Morgan management to be up-front about problems it may be having.

Most investors understand that businesses run into temporary trouble from time to time.An open, honest management could communicate this and warn about the possibility of a future dividend cut or dividend freeze.

Unfortunately, that’s not what Kinder Morgan did.The following quote is from CEO Richard Kinder from the company’s 3rd quarter earnings release on October 21st (about 50 days ago):

“As a company, we remain focused on our goals to continue to return cash to our shareholders in increasing amounts, to maintain our investment grade ratings and leverage targets while funding our business in the most efficient and economical way possible…

We currently expect to increase our declared dividend for 2016 by 6 to 10 percent over the 2015 declared dividend of $2.00 per share. We expect this range will provide the flexibility for us to meet our dividend and have excess cash coverage (emphasis added).”

There is little doubt that Kinder Morgan management was at least discussing the possibility of a dividend cut ~50 days ago.

Instead of being upfront with shareholders, management continued to claim dividends would increase – leaving investors with a false sense of security.This is not shareholder friendly behavior.

What A Shareholder Friendly Company Would Have Done

Philip Fisher used the analogy of different restaurants to explain different capital allocation policies.Patrons to a Chinese restaurant expect Chinese food.Patrons to an Italian Restaurant expect Italian food.Similarly, investors in a company that is committed to paying steady or rising dividendsexpect dividends.Investors in a growth stock expect the company to reinvest earnings into further growth.