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AmeriGas (APU) is the nation's largest propane company, serving over 1.3 million residential, commercial, industrial, agricultural and motor fuel propane customers in nearly 50 states.

AmeriGas is probably known more to investors as a stock with very high cash distributions, nearly 6.6% currently. However, I am concerned that this may not be sustainable for the company. Read below at the 10 year income statement of AmeriGas.

INCOME STATEMENT: 10-YEAR SUMMARY

DATE

SALES

EBIT

DEPRECIATION

TOTAL NET
INCOME

EPS

TAX RATE
(%)

09/11

2.54 Bil

141.31 Mil

94.71 Mil

138.52 Mil

2.30

0.30

09/10

2.32 Bil

170.76 Mil

87.40 Mil

165.21 Mil

2.80

1.90

09/09

2.26 Bil

230.20 Mil

83.77 Mil

224.64 Mil

3.59

1.10

09/08

2.82 Bil

161.98 Mil

80.39 Mil

158.02 Mil

2.73

1.00

09/07

2.28 Bil

194.24 Mil

75.59 Mil

190.78 Mil

3.26

0.40

09/06

2.12 Bil

92.88 Mil

72.25 Mil

91.16 Mil

1.59

0.20

09/05

1.96 Bil

63.78 Mil

73.63 Mil

60.85 Mil

1.10

2.40

09/04

1.78 Bil

93.55 Mil

79.69 Mil

91.85 Mil

1.71

0.30

09/03

1.63 Bil

73.77 Mil

73.71 Mil

71.96 Mil

1.42

0.80

09/02

1.31 Bil

56.70 Mil

65.28 Mil

55.37 Mil

1.12

0.60


Guidance for 2012 has an EPS of $1.94 and in 2013 is projected to be $2.60. How will APU be able to continue to pay their distribution which is over $3.00 a year? We can look at a comparable stock, Ferrellgas Partners, L.P (FGP). They may be better known to some by the Blue Rhino brand of propane that is sold at many stores across the country. Below is their income statement from the last 10 years.

INCOME STATEMENT: 10-YEAR SUMMARY

DATE

SALES

EBIT

DEPRECIATION

TOTAL NET
INCOME

EPS

TAX RATE
(%)

07/11

2.42 Bil

-42.52 Mil

82.47 Mil

-43.65 Mil

-0.60

0.00

07/10

2.10 Bil

35.26 Mil

82.48 Mil

32.71 Mil

0.47

5.40

07/09

2.07 Bil

55.65 Mil

82.47 Mil

52.57 Mil

0.79

4.10

07/08

2.29 Bil

25.27 Mil

85.57 Mil

24.69 Mil

0.39

0.30

07/07

1.99 Bil

41.96 Mil

87.35 Mil

34.80 Mil

0.55

15.60

07/06

1.90 Bil

29.03 Mil

84.96 Mil

25.01 Mil

0.41

12.10

07/05

1.75 Bil

-13.84 Mil

84.29 Mil

-15.38 Mil

-0.44

0.00

07/04

1.31 Bil

20.52 Mil

57.09 Mil

20.50 Mil

0.30

-2.00

07/03

1.17 Bil

53.77 Mil

40.74 Mil

52.97 Mil

1.15

0.00

07/02

1.03 Bil

60.73 Mil

41.92 Mil

59.96 Mil

1.34

0.00


FGP has been able to continue to pay a $2.00 a share dividend since 1995. Looking at these numbers, it makes the numbers that AmeriGas has look 10 times better.

Both companies have been buying smaller propane companies and trying to build up their customer base. However, their liabilities have been increasing as much as their assets with long term debt also increasing. Income growth has also been decreasing, and I would expect to see more of the same, with a warm winter in the United States, and people who can swap to natural gas from propane are more likely to do it, based on the extremely cheap prices of natural gas.

Conclusion

What may concern me the most is that AmeriGas missed earnings bad last quarter, and the stock still went up. Future earnings are decreasing as well. Ferrellgas however has fallen since an analyst downgrade in December. Both pay solid distributions (remember they are cash distributions, not dividends, so a K1 is in order), but their balance sheets make me nervous. It may be worth the risk for the high dividends (6.6% for APU, 10.5% for FGP), but I would keep both of these stocks on a tight leash.

Source: AmeriGas's Earnings May Not Keep Up With Dividend Growth