Monthly Dividend Stock In Focus: Superior Plus - Sure Dividend

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Monthly Dividend Stock In Focus: Superior Plus


Updated on April 27th, 2022 by Bob Ciura

Monthly dividend stocks are highly appealing to individuals such as retirees, because they make it significantly easier to budget dividend income against living expenses. We’ve compiled a list of all 49 monthly dividend stocks.

You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:

 

Superior Plus Corporation (SUUIF) is one such company whose management team has decided to pay a monthly dividend to shareholders. And, the company has an exceptionally high dividend yield.

As of today, Superior Plus yields 6.4% – more than four times the 1.4% dividend yield of the S&P 500. The high dividend yield and the monthly dividend payments of Superior Plus are two reasons why investors might take interest in this stock.

This article will analyze the investment prospects of Superior Plus in detail to determine whether the company merits consideration for the portfolios of income-oriented investors.

Business Overview

Superior Plus Corporation is a relatively small industrial company, but one of the larger propane distributors in North America. It has traded publicly for over a decade. The company is the dominant distributor in Canada (37.8% of total EBITDA), and has significant operations in the U.S. (62.2% of total EBITDA). Superior Plus generates around $2 billion in annual revenues, and is based in Canada.

The company previously had a large Specialty Chemicals segment, but sold this business in 2021 as part of a broader restructuring. Superior Plus is reorganizing its business to become a pure-play distribution company.

Superior Plus’ Energy Distribution segment is involved in the distribution and retail marketing of propane products, fuels (including heating oil and propane gas), and wholesale liquids marketing services. This segment operates primarily in Canada but has been expanding into the United States through a series of acquisitions that began in 2009. The Energy Distribution segment is operated under the trade names ‘Superior Propane’ or ‘Superior Gas Liquids’.

It should be noted that Superior Plus is an international stock – the company trades on the Toronto Stock Exchange under the ticker SPB and reports financials in Canadian dollars. Buying stocks based outside the U.S. presents a number of unique risks, such as currency risk. During rough economic periods, most foreign currencies weaken against the USD and thus the earnings of international companies in USD decrease.

Growth Prospects

Like many energy companies, Superior Plus was negatively impacted by the coronavirus pandemic and the resultant recession in the United States. As a result, the company incurred a 26% decrease in its earnings per share, from $1.63 in 2019 to $1.21 in 2020.

However, the company has stabilized its performance in recent quarters. In the fourth quarter, the company posted a 1% decrease in its adjusted EBITDA over the prior year’s quarter.

Source: Investor Presentation

The Canadian Propane segment incurred a 4% decline in its adjusted EBITDA due to higher operating costs as a result of the Canadian Emergency Wage Subsidy benefit. Moreover, the U.S. Propane segment posted a 0.6% decrease in its adjusted EBITDA, mostly due to warmer weather. As a result, Superior Plus posted a 1% decrease in its operating cash flows.

In the full year, Superior Plus posted essentially flat operating cash flows. This shows that the worse is behind the company in reference to the pandemic. On the other hand, given the strong recovery of oil and gas stocks in 2021, the flat results of Superior Plus are somewhat disappointing. Overall, the propane business has proved much more resilient to the pandemic than the oil industry but has much less upside during boom times.

On the bright side, Superior Plus implemented seven acquisitions for a total amount of $256 million. As this amount is 14% of the market cap of the stock, it is evident that these acquisitions will significantly contribute to growth.

Moreover, management expects adjusted EBITDA of C$410–$450 million in 2022.

Source: Investor Presentation

At the mid-point, this guidance implies 8% growth over last year.

Competitive Advantages & Recession Performance

As an operator in the energy distribution industry, Superior Plus has competitive advantages, benefiting from regulatory barriers to entry, and significant upfront capital outlays to enter the market. Unfortunately, Superior Plus has not proved resilient to all economic environments.

A company showing such outsized earnings-per-share declines can be expected to also cut its dividend when it reports losses. Indeed, Superior Plus cut its dividend twice in 2011. More recently, the company did make it through 2020 without reducing its dividend, a remarkable accomplishment given the fierce recession caused by the pandemic.

On the other hand, Superior Plus has increased its financial leverage lately. Management has raised its target leverage ratio (Total Debt to Adjusted EBITDA) from 3.0-3.5 to 3.5-4.0 in order to perform more acquisitions. The ratio is elevated right now, standing at 3.9. The increased leverage of Superior Plus has somewhat reduced its resilience to unforeseen downturns.

Dividend Analysis

The dividend yield will likely make up most of the returns of Superior Plus going forward given the lack of share price growth over the last decade. Superior Plus currently distributes a monthly dividend of $0.06 per share in CAD, or C$0.72 per share annualized. At present exchange rates, this works out to approximately $0.57 per share in U.S. dollars.

The company has distributed the same dividend for several years in a row. U.S. investors need to keep in mind that the company pays its dividend in Canadian currency, which will have an impact on actual capital received based on the fluctuations in exchange rates. Based on an annualized dividend payout of $0.57 per share, Superior stock has a current dividend yield of 6.4%.

Superior Plus is expected to earn $1.30 this year in U.S. dollars, giving the company a projected payout ratio of 44% for 2022. The dividend appears to be safe for the foreseeable future thanks to the low payout ratio. On the other hand, Superior Plus has not raised its dividend for years and is not expected to in the near future.

As such, we feel that Superior Plus is a risky stock for income investors to hold, particularly during a downturn in commodities or a global recession.

Final Thoughts

The high dividend yield and the monthly dividend payments of Superior Plus help this stock to stand out relative to other dividend investments, particularly for income-focused investors like retirees.

A due diligence reveals that this particular security has an underwhelming track record. Investors should not expect a dividend raise anytime soon.

Moreover, we do not expect material earnings-per-share growth or an expanding valuation multiple, leaving dividends as the primary source of expected returns. Nevertheless, for investors solely interested in income, the stock of Superior Plus could be appealing on that basis.

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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