TEPPCO Partners: Dividend Analysis

TEPPCO Partners, L.P., (TPP) through its subsidiaries, operates common carrier pipelines of refined products and liquefied petroleum gases in the United States. The company operates in four segments: Downstream, Upstream, Midstream, and Marine Transportation.

Teppco is part of the dividend achievers index. It has been increasing its dividends for the past 18 consecutive years. Over the past 10 years the company has delivered an average total return of 13.40 % annually to its shareholders.

At the same time the company has managed to deliver a 5.50 % average annual increase in its EPS.

The ROE fluctuated greatly, rising as high as 31% in 1999 then falling to as low as 11% in 2003, before settling at 22% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 5.90% annually, which is slightly above the growth in EPS. A 6% growth in dividends translates into the dividend payment doubling every twelve years. If we look at historical data, going as far back as 1995, TPP has indeed managed to double its dividend payments every twelve years.

If we invested $100,000 in TPP on December 31, 1997 we would have bought 4442 shares (Adjusted for a 2:1 stock split in August 2003). Your first quarterly check would have been $1888 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $6253 by October 2007. For a period of 10 years, your quarterly dividend has increased by 63.50 %. If you reinvested it though, your quarterly dividend would have increased by 221.20%.

The dividend payout has remained above 100% for the majority of our study period. When put into the perspective of the past 10 year’s average though, it looks pretty normal for the company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that TPP is attractively valued at its current price/earnings multiple. The company boasts an above average dividend yield.

Disclosure: Author owns TPP.

Comments

[waldipup]

Not too versed in this arena , but is a payout ratio of 170% up in the clouds , and one just over 100% still way too high?

[rdp1]

Big Mistake in this article. TPP never split in 2008. The stock did split in 1998.
Doesn't anyone proofread this guy?

[Dividend Growth Investor]

waldipup,

It all depends on the industry the company is in. Certain limited partnerships and REITS distribute most of their (net income+ depreciation expense) to limited partners/shareholders.

RDp1, the article does say TPP split 2003, but the actual spreadsheet has actually used 1998 as the split year. I guess writing articles at 1:00am isn't such a great idea, is it?