I am not a big fan of Cramer, but have owned this stock for a while (own it at 37). This stock has been unfairly beaten up. It is basically a utility that pays a great dividend. Don't look for a homerun, Just a consistent dividend. Unless you think that the economy is going to get so bad that people are going to quit heating their homes, this stock will hold up over the long haul.
I would not jump out so soon. They just raised distribution and retail prices/margins are in the statosphere. this distributiion, I believe, is very very safe for at least the next couple of quarters if not the entire year. You are not going to believe the earnings from these propane companies in the current and next quarter.
I agree with you completely. Margins should have expanded as they shed customers for 4 years in a row. They are not being forthcoming with the problem. I think they have no real marketing niche and the mom and pop's are taking market share. No propane company wants to lose any customers. They rent tanks to customers and make some money on that business. The delivery route still passes lost customers so the incremental cost of delivery is very low. Something else is wrong here and we do not know the answer. I fear we will find out in some very ugly way. When they report the year I would pay close attention to gallons sold. If it is down again, we have no choice but to sell. If gallons sold was One or two year event, it could be overlooked but not 4 years going on year 5----that is negativce growth. The cash flow multiple on negative growth should be 5-6 times not 8-9 where it is selling. This is a pure commodity business and customers can changed easily to the next cheapest supplier and it's not Suburban. In my area it is Amerigas and they will change the tanks out for free. Just because these guys have an 8% dividend yield, don't get lulled into complacent acceptance that everything is OK. I have sold my whole position, which was substantial, and gone to the sidelines to see the year end report on gallons sold. This market is too unforegiving to take a chance on poor fundamentals.
What I don't like is that there sales of fuel oil and propane in gallons has dropped for the last 4 years and people are still heating there homes I know 3 couples who have switched from SPH propane to other companies because of there pricing. Propane comes from natural gas production, the price of NG has been slowly coming down but not propane sold by SPH. Within the next 2 years you will see a cut in the dividend
You are overlooking their commercial business. It is cyclical as it it oriented toward fabrication, feedstock, and plant heating. It will suffer. The most disturbing thing is the trend in gallons sold. Even with the Agway acquisition, volume is down 25% in 3 years. The industry is down 3%. If volume is down in 2009 fiscal year, the dividend may be in danger. This is not a good holding long term until that trend clearly reverses. There are too many other MLP's like TPP, BPL, DEP that yield more and are just as stable.
I have owned this for years and I am selling my entire position as I view todays price a lucky break.
You need to distinguish the case where volumes are down 25% because the market is shrinking from the case where volumes are down because the company decided to deliberately stop servicing unprofitable accounts. The former would be an industry trend that would threaten the company's business. The latter is great financial management. Why spend money on things that don't make money? It looks like SPH is the latter.
What concerns me a little more is that their gross margins have been going steadily down for 10 years. Is that increased competition forcing them to lower prices, or is that a deliberate management decision to lower prices to capture as much business as possible? If the gross margin goes below 30% I would get very concerned.
Traders say to sell the rips in a bear market, but for the right reasons. I'm not selling just because the commercial business is down, since that was by design. About three years ago SPH started exiting low or no profit business lines, including the air conditioning business and their high-volume, low profit commercial propane accounts. They expected to be able to cut costs more than revenues, and they have performed on that promise. That cash plus some from asset sales has them pretty liquid compared with their industry, I believe.
So, yes, the stock is up from the high $20's recently, but it is also well below it's 2007 highs of the mid $40's. I think we know the near-term bottom for the stock and for oil and gas, so I'll continue to hold and collect that fat distribution. In this market, SPH looks very good to me.
I have owned this stock on and off (mostly on) for the last 7 years. I bought it 7 years ago at 22 and sold it a year and a half later at 34. (also got dividends!!)
Always have made money with it.
My last sale was earlier in the year at 43. I didn't like the earnings.
I bought it back a couple of months ago at 32. The reason is the dividend is very safe. They raised it again in the middle of October and at the time yielded 10%.
How many companies do you know were raising there dividends in this sh-t show environment.
It went down to 28 and I am annoyed I didn't buy more.
The reason it is going up is the market (including Cramer) is on a energy play right now along with the high yield it is a no brainer.
It may come off a little bit because it has had a big run over the last few weeks.
It is great energy stock to have in your portfolio. With a 10 percent yield you can afford to be patient.
If it goes down in early January I will buy more and collect my dividend at the end of the month.
SPH is a for profit company. That means they will take what the market will bear!! All companies- energy, cable, cell phone will try and rip you off when you are not looking!! Not worth while crying about it on a message board!!!
The bottom line is the company has done incredible things over the past 2 years to cut costs and hold on to cash while paying out a great dividend>
I wouldn't buy more here but if it goes back down to 29 or 30 they are giving it away.