This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

U.S. Housing Market and Ferrellgas Bail Out Themselves

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.

Take a company like Ferrellgas Partners (FGP - Get Report)

Must Read: [video] Quick Take: Brixmor IPO Shops More Shares

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.

Adam B. Scott is a founder of Argyle Capital Partners, a fee-only Registered Investment Advisor based in Los Angeles. A veteran of Morgan Stanley and UBS Wealth Management in Beverly Hills, Calif., Adam uses his extensive market knowledge and macro-level analysis to implement customized solutions for high net worth private clients. Adam is an avid tennis player and skier, and volunteers his free time to the Fulfillment Fund, the Tufts Alumni Association and coaching local youth sports.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
FGP $20.86 0.00%
AAPL $121.30 0.00%
FB $94.01 0.00%
GOOG $625.61 0.00%
TSLA $266.15 0.00%

Markets

Chart of I:DJI
DOW 17,689.86 -56.12 -0.32%
S&P 500 2,103.84 -4.79 -0.23%
NASDAQ 5,128.2810 -0.5040 -0.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs