With a weak global economy, a looming "fiscal crisis" in the United States, and a seemingly never-ending debt crisis in Europe, it doesn't look like things are going to change much anytime soon. That means we could be living in a low interest rate environment for the foreseeable future. Investors who put their money in Treasury Bonds might feel "safe," but the reality is that there are risks if rates rise, and even if rates are stable, you are still getting paid very little in view of the inflation risks and after-tax returns.
This means the hunt for yield will probably continue for years. The problem is that many of the best-known dividend-paying stocks have already been bid up to levels where investors are lucky to earn 2% or 3%. For example, Johnson & Johnson (NYSE:JNJ) shares now yield about 3.5%, and Exxon (NYSE:XOM) seems expensive by comparison as it only yields around 2.6%. Owning stocks in a stable economy that yield about 3% or less might make sense, but we do not have that type of stability. We are living in a world where major global markets can and regularly do plunge 2% to 3% in a single day based on the rate of Spanish bond yields, or on the words of a high-ranking official in Europe. For me, that makes it tough to wait a year to get paid 3% or less, when one bad day in the market can reduce an entire year's worth of dividends to nothing. Because of that, it makes sense to go off the beaten path and consider stocks that can provide much higher yields. Here is an energy stock that seems ideal for income investors seeking high-yields and relative safety:
Amerigas Partners L.P. (NYSE:APU) is the largest propane company in the United States. It serves over 2 million customers, which include residential, industrial, agricultural, and many other businesses, in all 50 states. It also provides propane fuel for vehicles. Propane is widely used to provide heat and power for industrial uses like forklifts, and is even sold in small exchangeable tanks for barbeques. Amerigas provides delivery with propane fuel trucks to many customers, but it also has about 1,200 locations from which propane can be purchased throughout the United States. Since this company is well diversified throughout the country, and because it provides basic fuel needs for so many consumers and businesses, it has a relatively stable level of cash flow and a lower-risk business model. Here are a couple more reasons to consider buying this stock, especially on dips:
1) This stock has been in an uptrend that could be poised to continue. In June, the shares were trading around $37, but have been climbing higher as more investors become aware of this high income opportunity. Analysts are also getting on board. On August 1, 2012, analysts at Zacks added Amerigas to their #1 Rated "Strong Buy" list.
2) Amerigas shares provide investors with a generous yield of about 7.5%. But that is not all. It also has a history of raising the payout. For example, in 2006, the quarterly distribution was 56 cents per share, but thanks to regular increases, it now pays 80 cents per quarter. Furthermore, it also makes special "one-time" payments on occasion: It paid a special distribution of 17 cents per share on 8/19/09 and 25 cents on 8/18/07, which is a nice bonus for investors.
A buy on dips strategy is likely to continue rewarding investors in this industry-leading propane company.
Here are some key points for APU:
- Current share price: $41.20
- The 52 week range is $37 to $46.47
- Earnings estimates for fiscal year 2012: 18 cents per share
- Earnings estimates for fiscal year 2013: $2.64 per share
- Annual dividend: $3.20 per share which yields about 7.5%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.