Dividend stocks have been capturing investor interest for the past couple of years because, with rates remaining at record lows, there are few options for generating income. Energy stocks have been one area where investors can find solid yields and also get some protection against the risk of inflation. While this has not been a huge concern recently, inflation could eventually make a comeback, especially with many central banks around the world printing money. Investors tend to seek energy stocks during times of inflation because oil is considered to be a hard asset that can't be printed by any government, like paper currencies.
For income investors seeking the inflation-protection that energy stocks offer, companies like BP p.l.c. (BP), which yields about 4.5%, and ConocoPhillips (COP), which yields around 4.6%, are often top picks. However, both of these stock have been rising lately, and the yields are not as exciting now. That's why investors who are willing to look at lesser-known companies could earn much higher yields and possibly even see more upside potential through capital gains. A number of limited partnership stocks in the propane energy sector offer yields that are about double the rate paid by major oil stocks like BP and ConocoPhillips.
Here is a closer look at one company that pays a big dividend and also has rebound potential:
Suburban Propane Partners LP (SPH) has been in the energy business for many years. It delivers propane, kerosene, and other fuels to businesses, farms, and consumers. Plus, it has a propane cylinder exchange program that is popular for use with patio heaters and barbeques. The company has about 1 million customers nationwide, and is planning for growth.
On August 2, 2012, the company announced that it had completed the acquisition of Inergy, L.P.'s (NRGY) retail propane operations - which adds many new customers and revenues. However, the company also announced a secondary stock offering of about 6,300,000 common units, which was priced at $37.61. This caused the stock to drop recently, (the shares were trading around $44 just weeks ago), but it looks to be a buying opportunity and the stock is already starting to rebound.
Suburban Propane's shares recently bottomed out around $37, and have since started to rise. It appears undervalued when compared to industry rivals like Amerigas Partners lp (APU), which offers a yield of about 8% - whereas Suburban offers a full point more. With a stable business model, and a yield of over 9%, Suburban Propane could be poised to provide income and capital gains as the stock rebounds.
One point to consider is that Suburban Propane is set up as a limited partnership, which means investors will receive a K-1 filing for tax purposes at the end of the year. This can add a little extra work when you prepare your taxes, but the yield can make it worth your while.
Here are some key points for SPH:
- Current share price: $37.69
- The 52 week range is $34.58 to $49.19
- Earnings estimates for 2012: 78 cents per share
- Earnings estimates for 2013: $2.92 per share
- Annual dividend: $3.41 per share, which yields 9.1%
Data is sourced from Yahoo Finance.
Disclaimer: 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.