Global Partners LP: Covered Dividend, But Inefficient Growth Model - Still A Good Income Buy

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About: Global Partners LP (GLP)
by: Michael Z. Yu
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Michael Z. Yu
Value, long-term horizon, dividend growth investing, closed-end funds
Summary

In hindsight, management’s signing of a long term lease to take advantage of a fleeting opportunity (arbitraging oil price differentials within the US) was not a good idea.

Global Partners (GLP) is currently pursuing a growth-by-acquisition model. GLP pays for acquisitions with its revolving credit, and then pays off its revolving credit by issuing debt.

GLP pays a high debt service in exchange for its acquisitions – not a good sign. The average coupon on its senior notes is 7.00%.

Management would better serve shareholders by taking measures to reduce financing costs, and approaching empire-building at a more leisurely pace.

Nevertheless, the distribution looks secure. GLP is a great addition to any income portfolio.

Introduction

Back in May 2016 I wrote a first piece about Global Partners LP, and looking back at it now it feels rather amateurish. But much about the business has changed since I wrote that