Can Suburban Propane Partners Grow in the Long Term?
Suburban Propane Partners’ distributions
Suburban Propane Partners (SPH) distributes propane, fuel oil, and refined fuels. It is also engaged in the marketing of electricity and natural gas. Suburban Propane Partners is currently trading at a distribution yield of 14.7%. In comparison, Ferrellgas Partners (FGP), AmeriGas Partners (APU), and Star Gas Partners (SGU) are trading at distribution yields of 8.0%, 9.0%, and 4.0%, respectively.
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The above graph shows Suburban Propane Partners’ quarterly distributions and distribution growth over the last ten quarters. SPH seems to be trading at an attractive yield currently. However, long-term weather and propane demand trends significantly affect propane MLPs.
Suburban Propane Partners is evaluating a 33% reduction in distributions in the fiscal quarter ended September 24, 2017. SPH will make a final decision on this in October 2017. The company hasn’t increased distributions for the last nine quarters.
Suburban Propane Partners intends to reset its distributions considering the warm winters over the last two years, which impacted propane demand. Mike Stivala, SPH’s president and CEO, said in the company’s fiscal 2Q17 earnings call, “And not just the past two winters, but a warming trend that we have experienced over the last decade, all with the goals of providing adequate cushion against the potential for future weather driven demand softness and adding flexibility for continued investment in our long term growth initiatives.”
Suburban Propane Partners expects that reduced distributions will improve its coverage and leverage and also provide it the flexibility to support growth.
Learn more about propane MLPs in APU, FGP, SPH, and SGU: Analyzing Prospects for the Propane MLPs.
Next, we’ll discuss the yield and performance of refining MLP Alon USA Partners (ALDW).