Acquisition and generous dividend
Shifting gears just a bit, Suburban Propane Partners LP (NYSE:SPH) is a company with the potential for rapid share-profit growth this year, as it should benefit from the August, 2012 buyout of Inergy Propane. The purchase doubled its customer base and expanded the company into eleven new states. As management further integrates the acquisition, earnings are apt to soar.
As of the June quarter, 79% of Suburban Propane Partners LP (NYSE:SPH)’s revenues were derived from the sale of propane, a substitute for natural gas and other fuels. Another 11% was derived from fuel oil and refined fuels, along with 5% from natural gas and electricity, and 5% from “all other” sources. The price per gallon of propane is close to that of natural gas. Distribution is by way of a 750 location networks existing mostly on the east and west coasts, with Inergy having provided a foothold in the Midwest.
Suburban Propane Partners LP (NYSE:SPH) will rely on the integration of Inergy for earnings improvements, at least for this year. It financed the purchase through common share and debt financing, reducing its current access to capital.
The shares, trading at 17.9 times forward earnings, offer a solid dividend yield of about 7.8%. With the benefits of the acquisition yet to be realized, they might well climb in price over the long term, after the buyout integration.
It is apparent that the management at these natural gas/propane companies views the market as favorable for growth. The combination of elevated oil prices and economic growth offers opportunities, and they are looking to capitalize through acquisitions, as well as organic projects. As energy suppliers, their stocks are relatively stable and offer above-average dividend yields. Accordingly, these companies all are worth considering at this juncture.
The article Alternative Fuel Stocks for Your Portfolio originally appeared on Fool.com and is written by Damon Churchwell.
Damon Churchwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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