Global Income Edge Gets Fed Boost

Federal Reserve chief Janet Yellen’s position to hold off raising rates is having the effect of boosting our income investments substantially– some by double digits. Continued low rates make our relatively safe, high dividend stocks more attractive to yield hungry investors who are piling into them.      

The surge in share prices just confirms our strategy of holding globally diversified income investments, especially when rates are low.

Higher share prices leaves us with a nice choice: Do we sell some of our winners and cash in, or do continue to hold them and collect nice dividends.

Of course, our foremost goal at Global Income Edge is finding solid businesses that deliver bond-like performance. But the types of price appreciation we’re now seeing means if we sell we can collect the equivalent of several years of income instantly. And this choice becomes compelling when the global economic forecast is somewhat murky.

We’ve decided to hold on to most of our income investments, even with some of sitting on double digit gains. One reason is selling may cause many investors to have to pay a steep premium for the same income investments months or years later if the global economy does not fully recover.

And we’ve seen the phenomenon several times in the last few years where investors sold out of dividend-paying stocks expecting higher treasury rates that never materialized.

However, we did sell a couple stocks this week with strong gains because we figured they didn’t have strong enough prospects. For those subscribers that may have missed our alert, please see the “Taking Profits, Raising Limits Alert sent yesterday.

Portfolio Update

AmeriGas Partners LP (NYSE: APU) reported adjusted net income attributable to AmeriGas Partners for the quarter ended Dec. 31, 2015 of $86.5 million, compared to $97.3 million for the same quarter a year earlier.

On a GAAP basis, including the impact of mark-to-market changes, AmeriGas Partners reported net income of $81 million for the quarter ended Dec. 31, 2015, compared to a loss of $39.6 million in the prior year.

The Partnership’s adjusted earnings before interest expense, income taxes, depreciation and amortization (Adjusted EBITDA) was $177.7 million for the first fiscal quarter compared with $188.5 million in the prior year.

Retail volumes sold for the quarter decreased 13.3% to 295.1 million gallons from 340.2 million gallons in the prior year.

The decrease in retail gallons sold reflects temperatures that were 16.8% warmer than the prior year according to the National Oceanic and Atmospheric Administration (NOAA), according to company press materials.

Jerry E. Sheridan, president and chief executive officer of AmeriGas, said, “Although this was a challenging quarter with weather that was approximately 20% warmer than normal and nearly 17% warmer than the prior year, we were pleased to deliver adjusted EBITDA that was only 6% below the prior year. This performance was made possible through a focus on operational efficiency and cost containment, as operating expenses decreased nearly $16 million from last year’s quarter.”

AmeriGas  is the largest retail propane distributor in the U.S. Although its business model is distinct from midstream master limited partnerships (MLPs), it’s still faced selling pressure owing to the LP in its name.

Unlike its MLP peers, AmeriGas is not dependent on the equity market for growth capital, instead funding growth via internally generated cash flows and by recycling capital. Indeed, it’s done just one secondary equity issuance over the past six years—in early 2012. And AmeriGas actually gets a margin boost from falling energy prices.

Meanwhile, customer retention is strong, and with a 15% market share, AmeriGas has room to further consolidate its highly fragmented industry.

Right now, as the CEO noted, seasonality is the company’s biggest near-term operating risk, especially given the warmer-than-average winter. But the effect of seasonality should smooth out over longer-term periods, thanks to AmeriGas’ increasing geographic diversification within the U.S.

With a yield of 8.61%, AmeriGas is a buy below $50.


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