Inergy: Secure for a Growing Income Stream

Last week Inergy, L.P. (NRGY) declared its 29th consecutive distribution increase and now the company is backing that up with a nice earnings report. NRGY is one energy related company where low energy prices can provide a benefit to the bottom line.

NRGY is primarily a retail propane provider with a growing midstream natural gas business. The retail propane side benefited from lower prices as their customers were less concerned about conservation during the cold last quarter of 2008. As a result, gross propane profits increased by $35.5 million to $152.7 million. Currently propane operations account for about 80% of revenues.

As a result of the strong quarter (Q1 for fiscal 2009) the company’s management increased their outlook for the year’s EBITDA by about 10%. Continued growth of the distribution seems to be pretty secure.

For the income investor, NRGY looks like a secure place for a growing income stream. The shares are still sporting a yield of almost 11%. I think this company should yield closer to 8%, giving a share price potential of $32.

Disclosure: NRGY is a component of my site’s hypothetical Income Portfolio.

Comments

[john s. gordon:]

one presumes that suburban propane is doing well also.
> jack

Feb 08 09:28 AM

[User 283977:]

You have two Portfolio's on your site. One is Income, the other is Opportunities.

I am unclear on how you are calculating your return on investment numbers for the Income portfolio? The site seems to imply the return for the Income investment is based on the percent increase or decrease in the stock price.

I would think an income portfolio would want to report the amount of dividends YTD, and the percent change in the stock price.

Another possible thing you might want to consider adding is purchasing more of the stock with the dividends. In that situation you would report amount of dividends YTD, the percent change in the stock price, and the number of new shares purchased each quarter, and YTD.

I think that would provide a more complete picture of the investment return for the Income Portfolio.

Feb 09 04:42 PM

[Jayhawk CFP:]

I agree that this is a good buy right now when the yield is this high... They WILL defend the dividend, which is good. Once you get your run, however, you should consider taking profit. The growth in the company will likely be slower than previously because they were using their stock to acquire smaller companies as their growth strategy. Not only is the stock lower - meaning less currency, but potential candidates (lots of mom and pops etc) would prefer cash these days for obvious reasons.

I do however think it is a good buy at this price - just don't fall in love w/ it if your yield drops to the ~9 or less range. At that point - people will move away because yields are high in other areas (corp bonds etc) too.


On Feb 08 09:28 AM john s. gordon wrote:

> one presumes that suburban propane is doing well also.

Mar 05 06:23 PM