For the family that owed $200,000 on a house worth $200,000 in 2011, it didn't much matter how "affordable" houses were. Now that their home is worth $275,000, the picture has become markedly brighter. This phenomenon is known as the "wealth effect," and it is legitimate.
What's Good for the Goose ...
The same logic can be applied to corporations. As stock prices have appreciated since 2009, companies are able to take advantage in unseen and underappreciated ways.
However, one thing Ferrellgas has done well is manage its cash flow, the very thing that has enabled it to gobble up smaller competitors. Each acquisition has broadened its customer base and, while not immediately cash-flow positive, has improved gross revenue.
Since 1995, FGP has paid a 50-cent quarterly distribution without missing a beat. Because of the consistency of its cash flows, Ferrellgas' stock has normalized since last year. At its current share price of $23 a share, shareholders are rewarded with an annualized yield of 8.80%. Today, thanks in part to the stock's rise, Ferrellgas has lower debt-to-equity ratio and is paying a smaller amount of interest on that debt.
All this puts Ferrellgas in a better position to take advantage of our still low interest rates. Just last week it offered $325 million in senior notes at 6.25%, using the proceeds to retire a $300 million note at 9.125% four years early. That $10 million in savings every year, and more important, management's ability and wherewithal to make such timely decisions, has been good for the stock. I have continued faith in this management. Look for similar patterns among other companies that may, at first glance, look to be overburdened with what has become the "other four-letter word."
-- Written by Adam B. Scott, founder of Argyle Capital Partners, in Los Angeles.
At the time of publication, the author was long FGP.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.