Factors behind the Propane MLPs’ High Yields
Suburban Propane Partners trades at a high yield
Suburban Propane Partners (SPH) is currently trading at a distribution yield of 14.7%. In comparison, AmeriGas Partners (APU), Ferrellgas Partners (FGP), and Star Gas Partners (SGU) are trading at distribution yields of 9.0%, 8.0%, and 4.0%, respectively. The Alerian MLP Index (AMZ) currently yields 7.7%.
The chart below compares the yields of the four MLPs as well as the AMZ Index. With its long track record of stable distributions, Suburban Propane Partners seems to be trading at an attractive yield. However, long-term weather and propane demand trends are significantly impacting the propane MLPs.
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Mike Stivala, Suburban Propane Partners’ president and CEO, noted during the company’s fiscal 2Q17 earnings call, “Over the course of the next several months as we prepare our business for next year’s heating season, we will be challenging ourselves to think about our business a little differently, particularly as we look to gauge customer demand in light of the recent warm weather trends.
“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 is considering a 33% reduction in its distributions in the company’s fiscal 4Q17.1 SPH expects to make a final decision on this action in October 2017.
Ferrellgas Partners (FGP) cut its fiscal 1Q17 distribution 80% in November 2016 with the aim of strengthening its balance sheet. In addition to warmer weather, FGP also suffered due to issues in its midstream operations.
To learn about MLP distributions in 3Q17, please read These MLPs Increased Distribution in 3Q17.
In the next article, let’s see where the current valuations of these MLPs stand.
- fiscal 4Q17 ending September 24, 2017 ↩