A Natural Gas Play That Pays Big Dividends
09/22/2009 1:00 pm EST
Bryan Perry, editor of Cash Machine, finds a high-yielding master limited partnership which should rise along with natural gas prices.
Even while natural gas prices are currently trading at multiyear lows, natural gas is one of the great energy waves of the future.
It's clean energy, so it conforms well with environmental policies and at a cheaper cost than oil or coal. Because of its domestic sourcing and green properties, most new power plants being planned for construction in America will be natural gas-generated, which means utilities are betting their futures on gas.
So, now is a great time to get on board, since gas prices are at historically cheap levels. As demand rises, prices rise, and as prices rise, so do the revenues and dividends of [master limited partnerships] that directly benefit from such increases.
With headquarters in Kansas City, Inergy LP (Nasdaq: NRGY) is a fast-growing MLP that has been around since November 1996. Over the past 13 years, the company has acquired more than 50 propane companies in the US.
As a result, it now has more than 300 customer service centers and about 700,000 customers in the eastern part of the country. And it annually sells about 360 million gallons of propane to retail customers, as well as 368 million gallons to wholesale customers.
[The company’s other businesses] include natural gas storage, supply logistics, transportation, and wholesale marketing. These businesses serve independent dealers and multistate marketers in the US and Canada, as well as a solution-mining and salt-production company.
In early August, the company announced that adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for its third quarter clocked in at $31.3 million. That represented a $9.3-million increase, or about 42% from the previous quarter.
So, for the first nine months of fiscal 2009 (which ends in September—Editor), adjusted EBITDA jumped about 26.4% to $273.4 million, and net income rose about 42.5% to $139.8 million, or $2.00 per unit.
Said chief executive officer and president John Sherman: "We remain on track to deliver on our full-year objectives, the fundamentals of our businesses are strong, and the future outlook is robust.”
Inergy upped its quarterly cash distribution to $0.665 per unit, or $2.66 annually. This represents a current yield of about 9% at its current price of [just below $30] per unit. And this was the company's 31st consecutive quarterly increase.
Following the company's dividend payout on August 14th and the pullback in natural gas prices, shares of NRGY have retreated from their 52-week high of $31. So, I recommend that you purchase NRGY at current prices up to $29. I want to lock in at least a 9% yield, so take advantage of this brief respite in the stock's up trend and accumulate shares while it is hugging its 50-day moving average (in the high $20s—Editor).