Through Dec 31, 2009, UGI's 5- and 10- year compound avg annual returns were 7.50% and 16.12%.....hardly returns to complain about, certainly when compared to the S&P 500. That index earned +1.06% and -1.03% over the same periods. (UGI's returns probably puts it in the top 10% over the 10-year period of all publicly traded stocks).
UGI's dividend yield has averaged 3% over the past 10 years, with the annual increases averaging 4-5%. The very strong 10-year returns (at 16%, no less than 17% above the S&P) came about through the very strong returns in the 2000-2004 period. That's when UGI bought Antargaz---a great acquisition, which gave consolidated cashflows a big lift. Likewise, the subsequent acquisitions of two Pennsylvania gas dist companies more recently were good deals, boosting earnings and cashflows. Smaller add-on acquisitions by AmeriGas likewise. Altogether, low double-digit avg annual gains in operating income and EPS over the 5- and 10-year periods. And a steady decline in consolidated debt (as measured by debt-to-cashflow). No wonder the UGI stock did so well!
I'd love to find a few more companies like UGI--companies with very, very stable operating margins, with modest risks, high and rising free cashflows capable of funding a number of some earnings-accretive acquisitions. Fingers crossed that UGI (and/or AmeriGas) will find another bunch of companies to buy in the near future!
Oil & gas exploration companies (true stars during the past decade) are vulnerable to the big swings in global oil prices. Who knows how they will do over the next decade? By contrast, UGI appears fairly well (but of course not totally) insulated against the volatilities in energy prices; UGI runs some great distribution businesses and is amongst the best operators in these businesses.
Having said that, dividends (with div yield averaging some 3% over the past decade)are....well, a little skimpy. In light of the significant increases in cashflows (up to $665 million in FY 2009) and far lower rate of growth in capital expeditures, let's hope that UGI will consider upping the annual rate of dividend increases. (Next dividend decision probably in April 2010).
Dividends and the rate of increase therein matter quite a bit. Annual dividends are now at $0.80; four consecutive 6% annual increases, would mean a dividend rate of $1.00 by 2013. And the stock price, at a 3% yield, could then be in the area of $33-34. The avg annual total return would be 9-10% over 2010-2013 period. Of course, this is not a guarantee.....
In any case, it means (at least to me) that owning UGI is a lot more attractive than owning a 10-year Treasury bond currently giving a yield-to-maturity of some 3.8%.
Maybe you should buy more!!!!!!!!!!!!!!!!!! Bentek Sees U.S. Gas-Productivity Gain Displacing Imports, Coal
Drumbeat: January 9, 2010 Posted by Leanan on January 9, 2010 - 10:38am Topic: Miscellaneous
Bentek Sees U.S. Gas-Productivity Gain Displacing Imports, Coal
(Bloomberg) -- Surging productivity from U.S. fields will end the need for natural-gas imports and provide enough additional fuel to run vehicle fleets and reduce coal-fired power generation, said consulting firm Bentek Energy LLC.
“We may very well be on the cusp of a completely different energy era than we’ve had for the last 30 or 40 years,” Bentek Chief Executive Officer Porter Bennett said yesterday in an interview in Bloomberg’s Houston bureau.
Bentek, which tracks gas flows across the nation, predicted in 2008 that output gains could push Canadian imports and liquefied-gas cargoes sent by tanker ships out of the U.S. market by 2020. That was before advances in technology that proved last year to invalidate old formulas for predicting gas output based on the number of active drilling rigs, he said.
Call to extract the UK's remaining gas supplies
The offshore energy industry has warned that pressure on gas supplies has shown that more should be done to extract the UK's remaining supplies.
Oil and Gas UK, the trade body, said that improved storage facilities should be a priority.
They also warned against downplaying the remaining potential of gas supplies in British waters.
Our paths cross again. I too believe UGI Corp is a stellar investment. Most people look at the profile (small electrical utility and distribution) and think boring stodgy utility.
I agree that they have been experts at allocating capital while not taking on much risk. The Antargaz deal gave them a strong European platform. The JV with Flaga also boosted exposure.
The dividend at UGI is almost entirely covered by distributions (both LP and GP) produced by their holdings in Amerigas. UGI is free to deploy cash generated by the base business in share buybacks, asset acquisitions, dividends etc.
I hope UGI will continue to find ways to build out their LDC gas biz in Pennsylvania from larger utilities that are more focused on electricity.
UGI is a solid investment. You won't get rich overnight, but I view it as a long term holding that will produce above average returns.