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Global Partners LP Message Board

  • richardleeds richardleeds Jul 27, 2011 7:50 PM Flag

    Dividend distr. coverage has dropped from 1.8x to 1.1x

    The last five years have demonstrated a drop in distribution coverage from 1.8 times down to 1.1 times last quarter and probably after this quarter it dropped to 1.0 times.

    The record of declining coverage for the dividend over the last five years demonstrates that the risk is going up. In addition, the last quarter was a loss reported for earnings.

    I like to see a business improving each year. This is really not happening.

    My other MLPs all have distribution coverage of more than 1.0-1.1 times. I like the safety of the higher coverage. Why, because the economy can keep deteriorating.

    What happens as we keep shifting more and more jobs overseas? Unemployment does not go down. What happens as the dollar keeps declining? Our energy costs go higher. What happens, Americans buy less gallons and drive less as they have to pay more for energy.

    I think the decline of the dividend coverage for this company from 1.8 times just five years ago down to 1.1 last quarter says a great deal about the margin for error and margins for a worsening economic outlook are not good.

    They grew the size of the company over the last 5 years which increased revenues. Still they took on more debt and more units and all the time the key metric, coverage of cash distributions declined each year. That means there is not as much cash for each unit each 12 months as the previous 12 months.

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    • Thanks for the interesting analysis. I agree this is a concern that could result in a lowered dividend down the road. Have there been any "special" or "one-time" events that might explain this?

      Also, is the gas station business part of the MLP operation? My impression when that acquisition was announced is the business is run by the Global managers but separate from the MLP distribution operations.

      • 2 Replies to brumar_lv
      • GLP owns the gas stations but does not directly operate them. Some are leased to outside operators and the others are operated by a company that is owned by the major owners of GLP. So GLP gets rental income and the profit on distributing gasoline to the leased stations, and gets income (I guess net of some fees paid to the related company) for the stations that aren't leased out.

        FWIW. I kind of think GLP's whole business is similar to the propane distribution business of NRGY and other propane MLPs, which I don't like. There's no consistency to profits, like you would have with a pipeline or royalty business, and no opportunity for significant profits from time to time when energy prices spike, like with an E&P MLP or a coal MLP. Not an attractive business model, unless you can buy GLP really cheap. It's not there yet, in my opinion, but it will soon be.

      • No one time events when the distribution goes from 1.8x, 1.6x, 1.5x, 1.3x, 1.1x.

        It is a constant decline every 12 months as they took on more debt, issued more shares and grew the company but failed to improve the financial coverage.

        Basically earnings per share, cash flow per share and distribution per share coverage has gone done.

        There is now no margin for error if this trend keeps up or the country goes into significant decline.

        They bought gas stations and they deliver more gas to more gas stations.

        Growing revenues looks good in the newspapers as you report revenues going up every year and cash flow going up every year. But when you look deeper into the business model, you see the dividend coverage dropping from 1.8 to close to 1.0.

        Not much lower it can go if the economy continues to decline due to irresponsible politicians. The Speaker of the House is trying to pass a bill that will cut the spending by $1 trillion dollars over ten years. That is $100B per year. S&P warned that they will cut the U.S. debt rating and that of 135 other U.S. government units, state and local units if the bill does not cut the deficit by $4 trillion. This will drive up borrowing costs for government, individuals and business, which is the same thing as a tax increase.

        We have idiots running the country and I think things are going to get tougher.

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