The company also has a consistent history of raising quarterly distributions and has done so 19 times since 1999. Distributions in the recent past have been financed entirely through operating income and the company has built up its cash position to $118.6 million, while holding long-term debt steady at $548 million over the last three years.
If Obama wins the election (which appears very likely as I write this) and raises the long-term capital gains rate and dividend taxation to 20% (for families earning over $250,000), the tax deferred status of MLPs is going to make them even more attractive to high net worth or high earning families.
Propane, a clean burning and non-toxic gas, is created as a byproduct of oil and natural gas processing and is used to heat homes, cooking and sometimes to power vehicles as Liquefied Petroleum Gas (LPG). According to the National Propane Gas Association, about 8.1 million households in the United States use propane to heat their homes as an inexpensive alternative to electricity. New Jersey based Suburban Propane services over 1 million residential and commercial customers in 30 states. Suburban Propane also provides customers the option to rent large propane tanks from them and since these tanks are often buried underground, switching to a different provider is not an easy option, giving Suburban Propane a "lock" on certain customers.
Suburban Propane has been on my radar for over two years since it showed up on a stock screen I ran in 2005. The stock lost nearly a third of its value in the second half of 2005 to $24.51 when the price of propane spiked and the company was not able to immediately pass on this increase to customers. The stock went on to nearly double from those levels to $48.83 by 2007 but lost a lot a ground over the last two months. At one point on October 6, 2008, Suburban Propane traded as low as $22.64. Since propane is a byproduct of oil refining, wholesale propane prices generally tend to follow oil prices. The important difference between the drop in Suburban's stock in 2005 and right now is that propane prices were rising back in 2005 but are actually dropping right now along with the price of oil.
The company hedges part of the propane it has in physical inventory by going short propane futures. When propane prices rose earlier this year, the company had to take a $14.5 million loss against its hedges in the fiscal third quarter ended June 28, 2008. This was right before oil hit its peak of $147 in July. If the company continued its hedging activity in its fiscal fourth quarter, which ended September 2008, the sharp decline in oil and propane prices during the quarter should prove beneficial to the company. Even if the company suspended its hedging program, the decline in propane prices should benefit the company as I do not see a significant drop in retail propane prices that Suburban Propane charges its customers. This is one of the key reasons why I find Suburban Propane attractive ahead of its fourth quarter conference call scheduled on Friday, November 14th.
We have a 2500 sq ft home with electric heat that used to cost $2000 plus a year to heat. Now we have a ventless propane stove (in our fireplace area) that heats the entire house even at outside temps of 0. The cost? Less than $800 per year. PLUS we can cook on it and heat with it when electricity is out during storms etc. All you need to enjoy these savings is a cast iron ventless propane stove with a couple of overhead fans to circulate heat all around the house.