Shares of Ferrellgas Partners (FGP) plunged a few days ago to about $18 after analysts at UBS AG (UBS) downgraded the stock from a neutral rating to a sell. Not surprisingly, the decline appears to be short-lived as demand for high-yielding dividend stocks remains very strong.
When the average stock in the S&P 500 Index yields just barely over 2% and investors are hungry for income, stocks like Ferrellgas probably won't stay down for long, as many investors see a buy on the dips strategy as a solid way to boost returns. In the energy sector, large cap dividend stocks like Exxon (XOM) yield just 2.6%, and Chevron (CVX) is not much higher at 3.2%. The yield offered by Ferrellgas can triple or nearly quadruple those payouts, which is why this stock should be able to shrug off an analyst downgrade and continue to rebound to where it was trading before the downgrade, at around $21.50 per share. Here is a closer look at the company:
Ferrellgas is a leader in propane fuel. It markets and distributes propane to consumers, industry, agricultural users, and others, in many states. Propane is a popular fuel for heating, forklifts, and even some vehicles. Ferrellgas also supplies many consumers with portable propane tanks, which are sold under the "Blue Rhino" brand. These tanks are exchangeable at many retailers nationwide and they are popular for use with barbecues, patio heaters, and for other applications.
It's also important to note that not all analysts appear to agree with the UBS downgrade, because just weeks ago, analysts at Zacks Equity Research upgraded Ferrellgas shares from neutral to outperform and it set a price target of $24 per share.
Ferrellgas is set up as a limited partnership, so investors will receive a K-1 filing for tax purposes at the end of the year. This can add some extra work when it comes to filing taxes, but with a yield that doubles and triples many popular energy stocks, this is an effort worth making.
Here are some key points for FGP:
- Current share price: $20.49
- The 52-week range is $10.20 to $23.02
- Earnings estimates for 2012: a loss of 16 cents per share
- Earnings estimates for 2013: 35 cents per share
- Annual dividend: $2 per share which yields about 10%
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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.