Updated on March 19th, 2019 by Nathan Parsh
Monthly dividend stocks are highly appealing to individuals such as retirees, because they make it significantly easier to budget dividend income against living expenses.
Unfortunately, there are very few stocks that pay monthly dividends. We’ve compiled a list of all the monthly dividend stocks, which you can access 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 more than 6% – more than three times the average dividend yield in the S&P 500.
This makes Superior Plus one of the few securities with yields above 5%. You can see the full list of all 5%+ yield stocks here.
Superior Plus’ high dividend yield and monthly dividend payments are two reasons why investors might take interest in this stock.
This article will analyze Superior Plus’ investment prospects in detail to determine whether the company merits consideration for the portfolios of dividend growth investors.
Superior Plus is an energy company headquartered in Toronto, Canada. The company has a market capitalization of $1.5 billion and operates in two main segments:
- Energy Distribution
- Specialty Chemicals
Details about each of Superior Plus’ operating segments can be seen below:
Source: Investor Presentation
Superior Plus’ Energy Distribution segment is involved in the distribution and retail marketing of propane products, liquid 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. Much of the operations of Superior Plus’ Energy Distribution segment is done under the trade names ‘Superior Propane’ or ‘Superior Gas Liquids’.
Superior Plus’ Specialty Chemicals segment is focused on the production and supply of sodium chlorate and chlor-alkali products. The segment does business under the trade name “ERCO Worldwide” and operates eight production facilities in North American and one in Chile.
ERCO Worldwide is the second largest producer of sodium chlorate in the world and serves customer segments such as pulp and paper, food, energy, and agriculture.
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.
Investors can get a sense of a company’s future growth potential by examining its historical growth rates. In the case of Superior Plus, the results are not reassuring.
From 1997 to 2017, Superior Plus saw revenues increase nearly 14% per year. However, from 2008 through 2018, revenue grew at a compound rate of less than 1%. Recent results have been drastically different in the most recent decade.
That said, when accounting for the low oil price environment of 2014 to 2016, Superior Plus appears to be performing much better. The company’s revenues grew nearly 18% from to 2016 to 2017. In 2018, revenues were higher by almost 14%.
Source: Investor Presentation
Looking at revenue growth in recent years portrays Superior Plus in a much better light.
Still, this has not translated into rising share prices. The company’s share price has consistently held below $10, not much higher than where it was during the 2014-2016 oil downturn.
Moreover, the share price is near where it was during much of the 2007-2009 financial crisis – a consistent under-performance during one of the longest bull markets on record.
In Superior Plus’ case, there are two reasons why rising revenues have not translated to rising intrinsic value. The first is because of the company’s weak spending controls.
Superior Plus has been unable to grow its net income at a pace anywhere close to its rate of revenue growth. This implies that the company’s expenses have been rising faster than revenues, which is a worrisome sign.
Capital expenditures were up 154% in 2017 before increasing 90% in 2018. This is partly due to the company’s capital-intensive business model (which generates significant depreciation and amortization charges).
The company’s inability to translate rising revenue to rising per-share net income is one reason it has failed to grow shareholder value over time. The second reason is that the company’s share count has meaningfully increased over time.
When a company issues shares, it is effectively performing the opposite of a share repurchase. Each continuing shareholder’s portion of the underlying business becomes less valuable.
In this case, dilution has definitely harmed the company’s shareholders. Superior Plus has nearly doubled its share count since 2008.
With all that said, the old adage of “past performance does not guarantee future results” may apply to Superior Plus.
Just because the company has under performed in the past does not mean it will continue to under perform in the future (although that is a trend that we’re very hesitant to bet against).
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 shown the ability to endure through all economic environments. Listed below is Superior Plus’ performance before, during and after the last recession:
- 2007 adjusted earnings-per-share: $1.41
- 2008 adjusted earnings-per-share: $0.58
- 2009 adjusted earnings-per-share: $0.71
- 2010 adjusted earnings-per-share: -$0.72
- 2011 adjusted earnings-per-share: -$2.78
- 2012 adjusted earnings-per-share: $0.83
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 by 26% in March of 2011 and again by 50% in November of 2011.
Superior Plus has responded by noticeably reducing its leverage. In fiscal 2012 (the first full year after the dividend cut), the company reported a leverage ratio (total debt to adjusted EBITDA) of 4.6x.
The leverage ratio was more than cut in half by the end of fiscal 2016, to 2.1x. However, the leverage ratio increased to more than 4x at the end of 2018.
Source: Investor Presentation
The company is in decent shape in terms of its debt load, with no material maturities until 2023.
After 2023, Superior Plus has a balanced maturity profile. This should give the company time to reduce to leverage ratio. The company has a target leverage ratio of 3.8x.
Valuation & Expected Total Returns
Superior Plus’ future total returns will come from valuation changes, dividend payments, and growth in the company’s adjusted earnings-per-share.
Unfortunately, Superior Plus has not shown high levels of earnings per share over the last two decades. In fact, adjusted earnings-per-share in 2018 were nearly identical to 1997’s result.
A similar result is seen when it comes to valuation as the current price-to-earnings ratio is similar to the historical average.
As a result, we do not expect meaningful growth from either earnings or valuation over the next five years.
Therefore, dividends will contribute the vast majority of total annual returns through 2024. The stock’s current yield is 6.4%.
Superior Plus’ high dividend yield and monthly dividend payments help this stock to stand out relative to other dividend investments, particularly for income-oriented investors like retirees.
Some due diligence reveals that this particular security has an underwhelming track record. Moreover, its recent dividend cut suggests that another dividend cut could occur during the next financial crisis.
Although its name suggests otherwise, we believe that Superior Plus is unlikely to deliver superior total returns moving forward.
We recommend avoiding this stock and instead investing in companies with more tangible characteristics of business quality.