AmeriGas: Study in Consistency
09/02/2016 8:00 am EST
Only two of the 14 stocks in our "Utility Report Card" that yield more than 8 percent rate a buy. And only one of these names is suitable for conservative investors, suggests Roger Conrad, utility sector expert and editor of Conrad's Utility Investor.
Although insiders continue to be net buyers of AmeriGas Partners LP (APU), the stock garners only one Buy rating from the 11 brokerage houses that cover the stock.
Regardless of investor sentiment, AmeriGas Partners -- a propane distributor -- is a study in consistency, which is remarkable when you consider the huge swings in propane prices that have occurred over the past five years.
In late April, the nation’s largest propane distributor increased its quarterly distribution for the 12th consecutive year, shrugging off an unusually warm winter that weighed heavily on demand.
Management also maintained its guidance for operating cash flow of $575 million to $600 million during its fiscal year ending Sept. 30.
AmeriGas Partners’ steady results in challenging markets contrast to some of its competitors and are a testament to the industry leader’s economies of scale and disciplined cost control.
The proof is in the pudding: The MLP’s operating income over the past nine months increased 18.1 percent from year-ago levels, despite a 10.5 percent decline in gallons sold.
The partnership also benefits from a supportive general partner, UGI Corp. (UGI), that assisted with the $2.8 billion purchase of Heritage Propane from Energy Transfer Partners LP (ETP) in January 2012.
This blockbuster transaction netted AmeriGas Partners a million new customers and 500 million gallons of incremental demand, firmly cementing its position as the No. 1 propane distributor in the US.
AmeriGas Partners offers investors a yield of more than 8 percent and a distribution that grows at a modest rate each year.
And you don’t have to worry about the MLP going out of business or making ill-advised forays into riskier business lines. AmeriGas Partners LP rates a buy up to $52 per unit.
By Roger Conrad, Editor of Conrad's Utility Investor