A debate over a potential dividend stock bubble has been brewing recently, as yield-starved investors bid up prices. Many dividend stocks are trading at or near 52-week highs, thanks to this ongoing hunt for income. Just take a look at shares of Verizon (VZ) which yields about 4.5%, or AT&T (T) which yields about 4.7%.
Both of these communication providers are trading well above their respective 52-week lows and trade at about 15 times earnings, which is on the high side of the recent trading range. With many well-known dividend stocks already looking "picked over" by investors, it makes sense to consider lesser-known stocks. In addition, if a stock is being bought by insiders, it could be a sign that it still has strong upside potential as well as a secure dividend.
AmeriGas Partners L.P. (APU) shares could be an ideal investment to make now due to a very generous yield of about 8%, plus it has seen significant insider buying transactions in recent days. It is a smaller company when compared to energy sector giants like Exxon (XOM), but it offers a much larger dividend since Exxon yields just 2.6%.
While Exxon probably offers lower risk, it will probably provide lower returns. Over 3 to 5 years, the difference in collecting a 2.6% dividend yield versus a 8%, can really add up. The 8% yield could provide returns of about 40% over 5 years, while the 2.6% yield will generate about 13% gains in the same time period. The large payout and recent insider buying make AmeriGas Partners shares worth considering. Here are 5 reasons why the shares look attractive now:
- On August 21, 2012, Rick Turner (a director), bought 4,000 shares in two transactions worth about $165,000. Other insiders were buying this stock earlier this year. For example, in March 2012, Lon Greenberg (Chairman), bought 4,000 shares, in a transaction valued at about $161,000.
- While AmeriGas Partners L.P. is not as large as Exxon, Verizon or AT&T, it does offer some similarities in terms of a predictable business model and steady cashflow because it offers propane which is a basic need for many businesses and consumers. Just as these customers need communication services, many also regularly need and use propane. AmeriGas is the largest provider of propane in the United States and it has about 2 million customers.
- AmeriGas has a diversified customer base that reaches into all 50 states. Its customers range from industrial users, to residential for heating and power, agricultural, forklift and vehicle usage, as well as the ever-popular small exchangeable tanks for barbeques.
- On August 1, 2012, analysts at Zacks gave AmeriGas a "strong buy" rating.
- AmeriGas shares offer a high yield now, but it also has a history of dividend increases. In 2006, the quarterly payout was 56 cents per share, but regular increases has put it at 80 cents per quarter.
Here are some key points for APU:
- Current share price: $40.65
- 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: $2.46 per share
- Annual dividend: $3.20 per share which yields about 8%
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.
