Monthly Dividend Stock In Focus: Superior Plus - Sure Dividend

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Monthly Dividend Stock In Focus: Superior Plus


Updated on May 27th, 2021 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 55 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 ~4.8% – more than three times the 1.4% dividend yield in the S&P 500. 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.

Business Overview

Superior Plus Corp is a relatively small industrial company, but one of the larger propane distributors in North America. It has publicly traded for over a decade. The company is the dominant distributor in Canada (35.2% of EBITDA), and has significant operations in the U.S. (64.8% 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, 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. 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.

Growth Prospects

Like many energy companies, Superior Plus was negatively impacted by the coronavirus pandemic and ensuing recession in the United States. However, the company is in the process of recovery, along with the rest of the energy sector.

Superior’s business activity started the year strong, with its Q1 results showing financial resiliency.

Source: Investor Presentation

The company generated an adjusted EBITDA of $17.48 million, 14% higher year-over-year in constant currency. More specifically, Superior’s U.S. Propane segment saw EBITDA growth of 35.4% due to the contribution from acquisitions completed in the last twelve months and from colder weather.

The Canadian Propane segment saw an EBITDA decline of 12% to $63.5 million, primarily due to lower average margins related to weaker wholesale propane fundamentals and lower sales volumes related to the impact of COVID19 and from warmer weather in Western Canada. Adjusted operating cash flow per share remained stable, at $0.70, compared to $0.71 in the comparable period last year.

Superior remains committed to growing its EBITDA through acquisitions. In January and February, the company acquired three companies, Holden Oil, Miller Propane, and Highlands Propane, increasing its U.S. and Canada distribution footprint.

On April 9, 2021, Superior completed the sale of its Specialty Chemicals, from which it received $495 million in cash. By focusing on its distribution operations, the company should unlock further cost efficiencies. Management continues to expect FY2021 adjusted EBITDA of C$370$410 million, a 10% increase year-over-year in its midpoint (excluding the chemical business).

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.

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, an accomplishment in and of itself due to the steep damage done by the pandemic.

Superior Plus has responded by noticeably reducing its leverage. Management seems to already be hitting its Total Debt to Adjusted EBITDA guidance of around 3.0x to 3.5x, as the figure was 3.6x as of Q1.

Dividend Analysis

The dividend yield will likely make up most of the Superior Plus’ returns 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 $0.72 per share annualized. At present exchange rates, this works out to approximately $0.60 per share in U.S. dollars.

The company has distributed the same dividend for a long period of time. 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 $0.60 per share, Superior stock has a current dividend yield of 4.8%.

Superior Plus is expected to earn $1.75 this year in U.S. dollars, giving the company a projected payout ratio of 34% for 2021. For now, the dividend appears to be safe due to the low payout ratio. That said, Superior Plus has not increased its dividend 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

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

Some due diligence reveals that this particular security has an underwhelming track record. Investors should not expect a dividend increase in the near future.

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

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