Dividend Safety Analysis: AmeriGas Partners
We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend.
Our Dividend Safety Score answers the question, “Is the current dividend payment safe?” We look at some of the most important financial factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more.
Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score at least 60. Since tracking the data, companies cutting their dividends had an average Dividend Safety Score below 20 at the time of their dividend reduction announcements.
We wrote a detailed analysis reviewing how Dividend Safety Scores are calculated, what their track record has been, and how to use them for your portfolio here.
AmeriGas Partners has a Dividend Safety Score of 40, indicating the distribution’s safety is somewhat below average. While the current payout may in fact be relatively secure, there are some troubling trends to be aware of, specifically when it comes to the MLP’s distribution coverage ratio (DCR):
| Year | DCF | Distributions (including GP IDRs) | DCR |
| 2012 | $339.2 million | $277.3 million | 1.22 |
| 2013 | $566.2 million | $335.9 million | 1.69 |
| 2014 | $594.5 million | $355.9 million | 1.67 |
| 2015 | $561.4 million | $377.7 million | 1.49 |
| 2016 | $490.9 million | $395.3 million | 1.24 |
Sources: Earnings Releases, 10-Ks
While any DCR above 1.1 is generally considered safe and sustainable, in the context of an MLP with a highly cyclical business model, which is not protected by long-term contracted cash flow, AmeriGas’ four years of declining coverage ratios portends potential trouble for the MLP’s 12-year track record of rising distributions.
That’s especially true when you consider the highly leveraged balance sheet, which itself might put the distribution in more jeopardy than the still high DCR might indicate.
| MLP | Debt / EBITDA | EBITDA / Interest | Debt / Capital | Current Ratio | S&P Credit Rating |
| AmeriGas Partners | 4.41 | 3.43 | 66% | 0.59 | BB- |
| Ferrellgas Partners | -5.49 | -2.78 | 132% | 0.79 | B |
| Suburban Propane Partners | 5.63 | NA | 63% | 0.72 | BB- |
| Industry Average | 2.25 | NA | 37% | 1.61 | NA |
Sources: Morningstar, Fast Graphs
When you compare AmeriGas’ balance sheet to its peer’s two things immediately stand out. On the plus side, AmeriGas’ existing cash flows allow it to still service its debt but its many years of acquisitions have still left it with a lot of debt, which has resulted in a junk bond rating that means higher borrowing costs and thus higher overall costs of capital.
And while its current debt load doesn’t yet put the MLP at risk of violating its debt covenants, the volatile nature of the business, which can see EBITDA fall substantially in any given year, does mean that investors need to be concerned that the debt load may put the existing payout at risk in the future (remember Ferrellgas Partners’ recent distribution cut (2)). That’s because AmeriGas’ debt agreements impose certain restrictions on its cash distribution policy if its credit metrics rise too high.
In other words, even if the coverage ratio were to remain firmly above 1.0, there’s still a chance that the MLP’s creditors could force a distribution cut in the coming years.
