This year, even on lower revenues, APU expects to earn $2.29 a share, which would be up from 2015’s $1.91. And in 2017, management believes that it will earn $2.71 (some suggest closer to $2.90) on slightly higher revenues. A forward price-earnings ratio of 16-to-1 suggests that APU’s value could easily move higher. Star Gas Partners (SGU-$9) trades at 34 times earnings. Suburban Propane Partners (SPH-$32) trades at 28 times projected 2017 earnings. And Ferrellgas Partners (FGP-$29) trades at 25 times 2017 earnings.
Because enthusiasts think APU could trade in the low $50s and because the dividend is secure, Oppenheimer, Royal Bank of Canada, Goldman Sachs, J.P. Morgan and Morgan Stanley collectively own millions of shares. I’m comfortable with your broker’s recommendation for these reasons: 1) APU observers believe the dividend will be raised an average of 6 to 7 percent annually over the coming years. 2) APU has a proven growth strategy. 3) The dividend is reliable. 4) The shares have a low beta. And 5) the dividend isn’t subject to federal tax, so you can spend every dollar it pays you. However, the dividend is considered a return of capital, which reduces your basis each quarter.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.