I am always on the lookout for new yield opportunities. The continued low interest environment means an income investor needs to look far and wide for nice income payouts at reasonable prices. I personally like Limited and Master Limited Partnerships in the energy space as I believe we are in the early innings of a massive energy production ramp up domestically. I also think Utilities are overpriced here and these entities should outperform the traditional utility sector for yield and growth. Recently I came across PetroLogistics LP (PDH) which offers a solid yield and has quite a few positive comments from analysts recently.
Recent Positives for PDH
- Citigroup upgraded the shares to "Buy" on sustainable Propane-to-Propylene spreads. It also raised its price target from $14 to $17 a share.
- Stifel Nicolaus also upgraded the shares in early January from "Hold" to "Buy".
- Dahlman Rose came out in mid-December stating to buy on any stock weakness.
- Consensus earnings estimates for FY2013 have gone up a dime a share in the last month.
PetroLogistics LP owns and operates propane dehydrogenation facility that processes propane into propylene in North America.
4 reasons PDH makes sense as an income play at under $15 a share:
- PDH yields almost six percent (5.9%) and distribution payments should increase in 2013 if the company hits the earnings targets analysts currently have for it.
- The company broke even in 2011, but is on track for approximately 90 cents a share of profit in 2012. Analysts have just under $1.40 a share in earnings projected for FY2013.
- Since it came public in May, insiders have not sold a share. The stock is also under its IPO price of around $17 a share.
- The company has a moderate amount of debt (less than 15% of market capitalization). The stock is also reasonably priced (less than 11x forward earnings) for a six percent yielder.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PDH over the next 72 hours.