With interest rates still near record lows,dividend stocks
remain one of the only options available for income-hungry
investors -- especially those at or nearing retirement. Thankfully,
there are plenty of options out there. We at StreetAuthoritycall
the best of the best "Retirement Savings Stocks."
A great place to findhedge againstinflation , which could make a
comeback as theeconomy picks up steam.
The only problem is that demand for energy stocks has bid up the
prices on prominent stocks to levels that make their yields less
appealing. For example, theyield on
shares has fallen below 3%. So with many of the better-known energy
names already looking overpriced, a better strategy may be to
consider lesser-known stocks.
The "Retirement SavingsStock " Yielding 7%
AmeriGas Partners L.P. (
may be aninvestment you should consider. This energymaster limited
partnership (MLP) is small when compared to industry giants such as
Royal Dutch Shell (NYSE: RDS-A)
, but pays a much larger dividend: shares yield 7%, in fact.
In addition, while not as well-known as the oil majors, Amerigas
Partners is no start-up. This company has rapidly grown to become
the largest propane distributor in the United States, supplying
propane fuel to more than 2 million businesses and homes in all 50
states. Many may be familiar with the small propane tanks used for
backyard barbeques, but propane is also widely used for heating and
in industrial uses such as powering machinery. Amerigas Partners
offers geographicdiversification and a low-riskbusiness model ,
providing necessary fuel for millions of businesses.
Now may be the perfect time to purchase shares since the company
is gaining synergies and increasing scale following a
majoracquisition . In January 2012, Amerigas Partners became the
industry's dominant player by acquiring Heritage Propane, the
nation's third-largest propane supplier, in a $2.9 billion deal.
The Heritage purchase extends Amerigas Partner's distribution
network to 1,200 locations, increases annual salesvolume by 500
million gallons (60%) and doubles the size of the retail customer
base. Its larger sizewill enhance Amerigas Partner'searnings by
expandingmarket share and boosting margins on gallons sold. The
company also has opportunities for even more growth through smaller
The Heritage acquisition also brought Amerigas Partners the
financial resources of a powerful new partner, Heritage's former
Energy Transfer Partners (
. Energy Transfer Partners now owns 32% of the MLP. Another 26% is
owned by thegeneral partner ,
, which has more than $6 billion in annual sales.
Amerigas Partner's financial results for the first nine months of
fiscal 2012 already show some of the benefits from themerger . The
company recorded a higher seasonalnet loss for the June 2012
quarter because of acquisition-related charges and
warmer-than-usual spring weather. Butcash flow , the main driver of
thepartnership 's distribution (dividend) growth, improved more
than 9% to $350.2 million in the first nine months of 2012 from
$320.7 million in the same period one year earlier. Management
raised itsguidance for cash flow in fiscal 2013 by 4% from $620
million to $640 million.
Amerigas Partners expects to realize $60 million of synergies
from the Heritage acquisition when the merger is completed this
year. As a result of the acquisition,analysts are now predicting
more than 11%-a-year growth in Amerigas Partner's earnings in the
next five years, which is a much higher rate than the 8% growth
forecast for industry peers and 9% growth for S&P 500 stocks.
40% growth in dividends
The rise in earnings should also help Amerigas Partner's
distribution coverage, with cash flow providing better than
two-fold coverage of the distribution next year. Improved coverage
should allow Amerigas Partners to continue to make acquisitions
while easily delivering on its promise of 5% annual distribution
Amerigas Partners already has a good track record in this
department. The annual distribution has risen from $2.24 seven
years ago to $3.20 today; that's more than 40% growth. As a nice
bonus for investors, the company has also occasionally paid special
one-time dividends: 25 cents in 2007 and 17 cents in
Risks to consider:
MLPs are required to distribute the majority of their income to
investors and rely on debt and dilutiveequity to make acquisitions.
Investors should alsonote that MLP distributions are taxed
asordinary income rather than at the lower dividend rate. But
because ofdepreciation allowances, typically 80%-90% of the
distribution is considered areturn of capital , which results
intaxes on this portion being deferred until the MLP units are
sold. Even better, the return of capital portion reduces thecost
basis of the investment and thetax liability over time. And if an
investor decides to sell MLP units sooner rather than later, then
profits are taxed at the more favorable long-termcapital gains tax
rate. Calculating the tax bill on a MLP investment can be
complicated, so it may make sense to consult a tax
Action to take -->
Amerigas Partners isn't exactly cheap at the moment. Shares trade
in line with the industry price-to-earnings (P/E ) ratio of 17. And
at $42 per share, the stock is just 9% below the52-week high .
Still, a generous 7% yield and superior safety (the stock'sbeta of
just 0.4 means it is 60% less volatile than themarket ) makes this
an attractive investment for any investor looking for a
Retirement Savings Stock
. Any pullback in the price should be viewed as an attractive entry
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