Your Global Partners Dividend Investment May Not Be As Safe As You Think

Mar. 25, 2022 4:04 AM ETGlobal Partners LP (GLP), GLP.PA, GLP.PBTSLA105 Comments6 Likes
Keith Williams profile picture
Keith Williams
7.61K Followers

Summary

  • Fuel prices are high and this means good times for fuel distribution and independent fuel convenience stores that sell gasoline.
  • Global Partners is such a business and it has an 8.7% dividend yield currently.
  • The question is whether this dividend yield is sustainable and will it last long enough to prove good investment outcomes?
  • I suggest that the electrification of transport is well underway and this means the end of the internal combustion engine, and that means pumping gas.
  • The question for dividend investors is whether the change is going to be slow enough for them to enjoy the benefit of current high dividends. I'm sceptical.

Two golden oil barrels on the digital display

sankai/iStock via Getty Images

There are many perspectives in the investor universe and I enjoy reading about others with a different approach to investment. A dividend approach is very popular with Seeking Alpha readers. The recent spike in gasoline prices has provided investors with an opportunity to invest in Global Partners LP (NYSE:GLP) to achieve a high dividend yield. On the face of it, Global Partners sits in a sweet spot because it has an extensive gasoline distribution network and also controls a wide convenience store network associated with pumping gas. Here I provide another way of looking at the problem of gasoline prices and how the gasoline gets delivered to independent networks, that suggests that a GLP dividend investment may not be as safe as one might anticipate. As always, the devil is in the detail and investment timing is a core part of the equation.

What is the Global Partners LP doing about electrification?

The Q&A of quarterly earnings is always the place where you get a sense of how management views change and the Q4 2021 call for Global Partners is a good example. In response to a question about appointment of an Electric Innovation Strategist, it was clear that management is thoughtful about the transition, but is looking to Government to help in funding establishment of charging sites. The short answer is that GLP’s GDSO portfolio consists of 1,595 sites and the company has been awarded funds to install charging stations at 9 of their sites. The revealing bit was that CEO Eric Slifka moved his response to the question about electrification to a more general view about terminalling and different fuels. Management clearly has a fuel-centric view of energy, while the world is electrifying. Note that the Biden Administration is paying attention to BEV charging, with plans for substantial spend ($7.5 billion) dedicated to building national charging infrastructure.

Refuelling an ICE is a way to capture further business from a car owner and GLP does this well. My understanding is that many BEV owners are very happy to no longer need to worry about refuelling because they just plug in when they get home. This leaves open whether GLP businesses are going to remain BEV customers. The point is that a fast charger is different to filling a tank with gasoline. Time will tell if the convenience store attached to a filling station is going to be a successful business model going forward. I think public charging stations are likely to be more attractive to customers of shopping centers, where a stay of more than a few minutes is warranted, than a convenience store.

It is clear that GLP thinks that there is not going to be a major change from pumping gasoline for the foreseeable future. This would form the basis for dividend investment.

How much change is needed to impact GLP’s business?

Markets respond long before a change is fully implemented. Sceptics of electrification love to cite statistics about low numbers of electric vehicles and invariably revert to a suggestion that the shift will take forever. So the argument is not to worry about these transitions.

Two things focus my mind. Firstly, the speed of transitions is astonishing when they happen. The complete switch from horse and cart to motorised transport happened in not much more than a decade. We are already well into the start of BEV adoption. Tesla (TSLA) will sell ~1.5 million vehicles this year. The Biden Administration’s goal is for BEVs to comprise 50% of vehicle sales in the US by 2030, and global BEV sales will be above 10% in 2022. Secondly, you don’t need full adoption to mess with an industry. Oil prices change dramatically on single-digit % changes in supply and demand.

Dividend investment takes time because your 8.7% dividend takes a year to be earned.

It is all about timing

To be comfortable about dividend investment in Global Partners, an investor needs to ignore/discount the relevance of structural change in the transport industry. If there is no threat of change, it would follow that there would be steady money to be made from a big short-term upwards shift in gasoline prices.

My point is that a happy dividend investment needs time to be realised and at the end of your investment period, you need to be able to exit the stock in a way that doesn’t negatively impact the gains from the dividends. I'm convinced that there is going to be an end to pumping gasoline, so a dividend investor will exit GLP at some stage, unless the company radically changes its business.

So the question is about timing. My take, based on the switch from horse and cart and the iPhone, is that the window is much shorter than dividend investors assume. I’m not the investor here, so the chore for you and your financial advisor is to decide about the timing issue, because it is surely relevant.

It is about making money

So my question is: “Does an 8.7% dividend, that might only last a year or two, justify locking away a fair chunk of capital that might be worth considerably less when you exit?”

Conclusion

I’m a dividend investor’s nightmare because I thrive on change and look for opportunities that provide major capital appreciation. This is not for the faint hearted and usually means backing one’s research against the mainstream. It works for me, but it is hard work.

I’m not saying don’t consider a dividend investment in Global Partners, but I do say it is worth you and your financial advisor at least taking into account that the world is changing fast and that this is going to impact dividend investors too whether you like it or not. I’m not a financial advisor but I do a lot of research into how to make a buck. I hope that my comments help you and your advisor as you chart these perilous times.

This article was written by

Keith Williams profile picture
7.61K Followers
Keith began his career as a research scientist (developmental biology, biochemistry, molecular biology) at the Australian National University, University of Oxford (UK), the Max Planck Institute for Biochemistry (Munich, Germany) and finally Macquarie University (Sydney) where he held a Chair in Biology and established the Centre for Analytical Biotechnology. Pioneering the area of proteomics (with Marc Wilkins in his group coining the term), Keith established the world’s first government-funded Major National Proteomics Facility (Australian Proteome Analysis Facility) which was involved with industrialising protein science. Keith left academe with his team to found Proteome Systems Ltd in 1999 to commercialise proteomics. The company had a strong focus on intellectual property, engineering/technology and bioinformatics. As CEO he led the company to ASX listing in 2004. Since 2005 Keith has been involved in new business development in biotech, e-health and other emerging technologies. Keith sees climate change and sustainable development as a major issue for humankind and also a major business disruptor/risk and opportunity. Keith holds a Bachelor Agr Science from the University of Melbourne and a PhD from the Australian National University. He is a Fellow of the Australian Academy of Technological Sciences & Engineering and received an AM (Member of the Order of Australia) for services to the Biotechnology Industry. He has received various industry awards including an Innovation Hero Medal from the Warren Centre for Advanced Engineering. With 300 scientific papers and many patents written, Keith has a clear view of innovation in the Biotechnology and Climate/Renewable Energy space. He is not a financial advisor but his perspective adds relevance to decision-making concerning feasibility and investment in technology innovation.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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