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Propane Pays Off: Under the Radar

Suburban Propane lacks the flash of other energy companies, but its performance rivals those of bigger names.

WHIPPANY, N.J. (TheStreet) -- Hank Hill, the main character in the animated show King of the Hill, liked to say he dealt in "propane and propane accessories." Like hapless Hank, propane is a simple, boring industry.

Propane burns clean and is a byproduct of oil and natural gas production. While there's nothing remarkable about the industry, companies that deal in the gas can be solid investments.

Whippany, N.J.-based

Suburban Propane Partners

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lacks the flash of other energy companies, but its performance rivals those of bigger names. During the past year, Suburban shares have gained 26%, while

Exxon Mobil's

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dropped 5.5%.

Much of the gain comes from a dividend that yields about 7.4%. This massive dividend powers the stock even during difficult times.

Suburban Propane also benefits from steady demand from people who rely on propane to heat their homes. Dependable customers make the company seem more like a utility, but without regulatory issues.

Traditional utilities are highly regulated and typically pay big dividends to investors to offset growth restrictions. Utilities act more like bonds than stocks by generating income rather than growth, which makes them more vulnerable to interest rate changes than most equities. Low interest rates make stocks with big dividends attractive to investors looking for income.

A beta value of 0.5 shows how stable Suburban Propane shares have been versus the market during the past year. While the stock is unlikely to skyrocket, its steady operations and dividend should make up for slow growth.

We rate Suburban Propane "buy" because of its huge dividend, solid performance and financial strength. It may not lead to huge gains, but following the rules is sometimes better than picking some esoteric stock that makes something you don't understand.

As Hank Hill would say: "You can't just pick and choose which laws to follow. Sure I'd like to tape a baseball game without the express written consent of Major League Baseball, but that's just not the way it works."

-- Reported by David MacDougall in Boston.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.