It’s a Gas

Dear Mr. Berko: My wife and I are 87 and both in fair health. We followed your advice and got rid of a stockbroker who seems to have made more money in commissions than we made in dividend income last year. We just liquidated 1,000 shares of Cognex at $28 and 1,000 shares of United Continental Holdings at $43 and took sizable losses. Our new broker recommended that we buy 1,000 shares of AmeriGas for rising income and very modest growth. We have a fair amount of income from other sources, but we are trying to arrange this large portfolio of ours for income and growth for our six grandkids, who will get it when we’re gone. What is your opinion of AmeriGas? — GR, Vancouver, Wash.

Dear GR: AmeriGas (APU-$43.50) is the largest retail propane distributer in the country and owns 15 percent of a very fragmented market. Last year, APU sold propane to 2.1 million residential, commercial, industrial, motor fuel and agricultural customers through 2,000 distributors located in every state. That includes the last two, which joined the union in 1959 and screwed up the contiguous U.S. coastline. APU markets propane under various trade names, such as Heritage Propane. APU also sells, installs and services propane appliances, including commercial and residential heating and air conditioning systems. And the current 94-cent quarterly dividend, which has been raised for the 12th consecutive year, yields a sweet 8.5 percent.

Revenues fell 22 percent last year and will fall about 19 percent this year because of unseasonably mild weather. However, revenues for 2017 are expected to pick up nicely, this time enhanced by lower prices and a string of small but complementary acquisitions in a fragmented propane market. Management has an aggressive acquisition program that’s attractive to smaller venders and has proven success with over 100 sellers in the past dozen years. APU’s acquisition management team has an exceptional reputation that has earned the trust and respect of many hundreds of smaller, independent propane distributers. In fact, APU’s acquisition pipeline is in daily communication with potential sellers and actively searches the country for independents that could benefit from APU’s lower costs, greater flexibility, expert marketing skills, attractive cash flow, excellent industry reputation and strong banking connections. Acquisitions are an important component to APU’s growth strategy.

APU also has bragging rights to some excellent numbers. Its 9.1 percent net profit margins are the best in the industry; its 6.2 percent return on assets and its 18.1 percent return on equity are equally impressive, as is its $508 million cash flow.

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. But because you intend to own APU for the remainder of your life (may it be healthy and long) your grandkids will receive your shares on a tax-favored basis.

Meanwhile, I also like your broker’s selection of General Electric, ADP, Johnson & Johnson, Sysco, RPM International, LyondellBasell, Dollar General and Pfizer.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.


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Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.