Suburban Propane Partners (SPH) shares were in an uptrend in September and October and the stock went up to about $43.50, but since then the shares have succumbed to the post-election market decline and concerns about the possibility for a major increase in dividend taxes in 2013. The stock is now trading for about $37, which is near the level where it bottomed out in the last major selloff in August. That selloff was due to a secondary stock offering of about 6.3 million shares, which was priced at $37.61. That is just one of a couple signs indicating it might be time to buy some shares. The other two reasons that make this stock worth considering now is the very generous dividend yield of over 9% and a recent insider buy.
Suburban Propane Partners is a leading provider of propane, kerosene and other fuels which it delivers to residences, farms, businesses and industrial users. Propane is a popular fuel for heating homes and it also is frequently used as a portable energy source to power patio heaters and barbeques. This company has a propane tank exchange program and around 1 million customers that it serves nationwide. Earlier this year, this company acquired Inergy, L.P.'s (NRGY) retail propane operations, which added many new customers and revenues for Suburban.
At least one insider is taking advantage of the recent pullback in the stock. On December 12, Matthew Chanin (a director), purchased 2,000 shares in a transaction valued at $76,420. With the stock down from recent highs, near the level where it last bottomed-out and with a yield of 9.1%, it makes sense to consider this dividend-payer now. Investors who buy now might be poised to collect a generous yield, but also possibly generate some capital gains if the stock rebounds.
As with any stock, there are risks such as poor management, competitive pressures and even the economy. However, the propane business is relatively stable and most customers will keep using fuel even in a down economy. Plus, propane and other fuels are needed on a recurring basis. This provides steady cash flow and reduces risks for investors. One risk that can really impact this and other companies in this industry is the weather. If there is an unusually warm winter, it can drastically reduce the need for energy and that is one factor to keep in mind.
Also, Suburban Propane is set up as a limited partnership, which means investors will receive a K-1 filing for tax purposes at the end of the year. This can add a extra step when you prepare your taxes, but the yield and potential upside from capital gains can make it worth the effort.
Here are some key points for SPH:
Current share price: $37.63
The 52 week range is $34.58 to $48.25
Earnings estimates for 2013: $2.72 per share
Earnings estimates for 2014: $3.20 per share
Annual dividend: $3.41 per share which yields 9.1%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.