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.
The MLP goes ex dividend anyway and opens down $.80 so selling before gets you capital gains instead of ordinary income from the distribution. I don't care about that. I am just afraid the all this overcharging has again killed customer growth. Another 10% loss in gallons sold in 2008 would be very bad for cash flow.
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.
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.