I've got a spec here with what I feel is an interesting risk/reward profile. Disclaimer: I currently own units at about these levels (mostly for income purposes), and have an order in to buy more slightly below the market (for total return).
The ticker is SGH, these are senior subordinated units of Star Gas, the largest home heating oil distributor in the US. Because they are subordinate to the common units (SGU), the dividend can vary depending on performance, which is highly dependent on weather. Because we had a record warm winter, the dividend was cut from .575/Q (what SGU holders have received, and continue to receive), to .25 for this Q, and most likely the summer and fall Qs. IF, a big if, next winter's temperatures are more normal, the .575/Q dividend could return as early as Q1 '03.
So, the primary risks IMHO are interest rate risk (if rates back up, the yield, currently north of 8.3%, becomes less attractive), and weather risk.
If one thinks we will experience more normal temperatures next heating season, I think this is a good bet. If you believe in global warming, avoid.
As a master limited partnership, these units have different tax characteristics than common stocks.
Comments most appreciated.
Wallace |
