Star Gas Partners (SGU) is not only one of the highest paying dividend stocks we cover, but it is also one of the best monthly dividend stocks we cover. We will explain why in this report.
Star Gas Partners (SGU) is an energy provider (mainly home heating products and services) to residential and commercial customers primarily in the Northeast and Mid-Atlantic regions of the United States. Specifically, it is a service provider of home heating oil and distributor of propane. Through its subsidiaries, SGU also installs, maintains, and repairs heating and air conditioning equipment. SGU also sells gasoline and diesel fuel on a delivery only basis.
Star Gas is headquartered in Stamford, Connecticut; and it is structured as a master limited partnership (MLP). As an MLP, its unitholders are required to report for federal income tax purposes their allocable share of SGU’s income, regardless of whether SGU makes cash distributions or not.
Despite being in the “Oil & Gas Operations” industry, SGU is a fairly safe business. The role it fills it almost like that of a utility; and it shows in its numbers. Its cash flows from operations and free cash flows have been consistently positive. Its beta is an incredibly low 0.20. And it has raised its dividend every year since at least 2008.
SGU uses a great deal of leverage (equity-asset ratio = 0.410). But this is not excessive given the steady nature of its business, and it is not out of line with how much leverage it has used in the past.
There is only one thing about SGU that concerns us. It is a very small company. In many ways, smaller companies are harder to scrutinize than the larger companies; consequently they sometimes can surprise in very unpleasant ways. However, as long as investors do not fill a portfolio with stocks exactly like SGU in this regard, and they remember SGU should be one stock in a well-diversified portfolio, the risk is not too great.
Stat Sheet – Star Gas Partners 4/15/16
|Industry||Oil & Gas Operations|
|Market Cap||$ 495|
|Growth Prospects||Above Average|
|Price Volatility||Below Average|
(Our assessment of this firm’s fundamentals will be in effect for the rest of calendar year 2016.)
Even Warren Buffet puts more than one stock in a portfolio. No one can forecast with perfection a single stock. No matter how much promise a stock has, it can disappoint; and SGU may disappoint. But we feel strongly that if you buy predominantly stocks that have a stock fundamentals rating (i.e. a Comprehensive Fundamental Rating) of “B” or higher (like SGU), your portfolio will beat the market over time on a risk-adjusted return basis.
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Over our nine-year existence, those firms that had stock fundamentals we rated as “B” beat the average firm significantly in terms of both risk and return.
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