Ferrellgas Partners (FGP) is one of the largest propane companies in the United States. Propane fuel is used in many rural areas for heating and it is also used to power forklifts and other vehicles. Propane has industrial and agricultural uses as well. Many consumers use propane for patio heaters and barbecues. Ferrellgas supplies this market by providing portable propane tanks which are sold under the "Blue Rhino" brand. These tanks are exchangeable at many retailers across the U.S.
Ferrellgas has about $2.16 billion in annual revenues but for some investors the balance sheet is less than conservative. The company has about $12 million in cash and around $1.27 billion in debt. This is a risk factor for investors to consider, but the company has successfully managed this challenge in the past. Furthermore, it has been working to strengthen the balance sheet. In the past year, it completed a secondary offering of stock which raised capital. Patient investors might want to wait for the possibility of another offering because that typically puts some short-term pressure on the stock and it may create a better buying opportunity.
In spite of the potential balance sheet risks, this stock appears like a solid buy on dips as it offers a generous yield of nearly 10%. Furthermore, the propane business provides steady cash flow and it is a basic need for many businesses and consumers. That means it is relatively well-positioned in an economic downturn.
On March 5, 2013, analysts at Zacks upgraded this stock to outperform from neutral. Zacks cited a number of factors for the upgrade and it stated:
"The revision in recommendation was primarily driven by Ferrellgas Partners' steady acquisition strategy, decline in operating costs, strong liquidity positions and steady effort toward debt minimization."
It's worth noting that Ferrellgas is set up as a limited partnership, so investors will receive a K-1 filing for tax purposes at the end of each year. This adds some extra work when it comes to filing taxes, but with a yield of roughly 10%, it could be worth the additional effort.
Here are some key points for FGP:
Current share price: $19.93
The 52 week range is $13.35 to $21.85
Earnings estimates for 2013: 59 cents per share
Earnings estimates for 2014: 61 cents per share
Annual dividend: $2 per share which yields about 10%
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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.