Inergy: A Good Dose of Growth Opportunity & Income

| About: Crestwood Midstream (CMLP)

Inergy L.P. (NRGY), a master limited partnership, provides a good dose of both growth opportunity and income.

Inergy is in the propane distribution business. The primary business is distribution of propane to residential and commercial customers in 30 states. The company also provides what they call midstream operations: storage, transport and processing of propane and natural gas as well as wholesale distribution. The company has several factors going for it:

  • Growth opportunity exists by purchasing smaller propane distributors. The industry is very fragmented and Inergy has already absorbed over 50 smaller distributors. Many opportunities still exist in this area.
  • Midstream operations are also growing with added storage capabilities.
  • Management appears to do a very good job managing expenses to maintain margins in an industry with tremendous seasonality.

Looking at the financials, the earnings per share are very seasonal, ranging from big quarterly losses in summer and fall to larger quarterly gains in winter and spring. Distributable cash is significantly higher than earnings due to significant non-cash charges against earnings. The cash distributions are what make this company attractive, and they have been very attractive!

Quarterly distributions have risen consistently from an annualized $1.43 per share in 2003 to a current $2.38. Distributable cash from operations for FY 2007 were $2.47 so the dividends are covered. The dividend yield at the current stock price is 7.7%. The dividend has increased 70% over the last 5 years and 8% over the last year and the stock has consistently carried a 7%+ yield. I see this as a pretty nice combination of growth and income.

Disclosure: I currently do not have a position in NRGY.