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Ferrellgas Partners LP Message Board

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  • rrb1981 rrb1981 Aug 3, 2005 4:08 PM Flag

    Can someone explain...

    Ferrell cannot continue to operate with a distribution coverage ratio below 1.0x. The cash either has to be borrowed or the subordniated holders don't get paid. That is fine and dandy until the ESOP no longer gets distributions and the employees have already seen a halt in the contribution matching and now the subordinated units aren't receiving distributions. This cannot continue for long. The same thing happened to Star Gas (SGU). Everyone said, they've paid the distribution for x number of years...and suddenly the game ended for them and Star gas dropped 75% in one day and then they were all crying that they never saw it coming despite the numerous warning signs. FGP has a high yield for a reason, the reward has to be great in order to compensate for the risk. Most investors are not smart enough to realize that the market prices risk into the yield. GE has a low yield because people know GE is a AAA rated company, FGP has a nearly 10% yield because it has a lot of risk involved in it. They will not drive the price up to the point that the yield is low, because they could easily buy an MLP like Kinder Morgan that has increased its distribution just about every quarter for the last 5 or 6 years. All the simpleton investors see is a fat yield and they think that FGP is a gravy train, without ever asking why the yield is so high. In fact, many investors think an MLP with a higher yield is better than one with a lower yield, never thinking that the MLP with a lower yield gets a higher valuation because they are growing and increasing the distribution every quarter. Look at PAA, it just raised its distribution from .58 to .65 in just 1 quarter. How long has it been since FGP raised its distribution?

 
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