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At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

Danger: gas leak
And speaking of "best and worst," investors in propane distributor Ferrellgas Partners (NYSE: FGP  ) got a rude wakeup call from reality this week, with UBS playing the part of telephone.

As UBS points out, "FGP has significantly outperformed the peer propane MLPs and the broad market." Over the entire past year, shares of AmeriGas Partners (NYSE: APU  ) , Star Gas Partners (NYSE: SGU  ) , and Suburban Propane Partners (NYSE: SPH  ) are all down -- 2%, 12%, and 19%, respectively -- while Ferrellgas is up 8%. (Energy Transfer Partners (NYSE: ETP  ) , a bigger and broader business than the rest, is also down 1%.)

But if I might paraphrase "the Dude" in The Big Lebowski: "These aggressive profits will not stand, man." The jig is up for Ferrellgas.

Leaky logic
After all, UBS wonders, what is it that's supporting Ferrellgas' strange outperformance of its peers? "FGP's yield 9.2% is above the peer avg yield of 7.7%, FGP has never increased its distribution since becoming public in 1994, while the peer group has increased its distribution at an avg CAGR rate of 5% since 2000."

You can practically feel the analyst's outrage over Ferrellgas' failure to share the wealth. But the real point to focus on here isn't the company's supposed stinginess -- it's the fact that Ferrellgas really has very little money to be generous with in the first place.

Forget UBS' beef. Where are Ferrellgas' profits?
Consider: Alone among the big propane players, Ferrellgas earns no profits. It's true that with price-to-earnings ratios of 32 (Suburban Propane), 58 (Star Gas), and 98 (AmeriGas), even the most optimistic analyst would be hard-pressed to make a case for buying these stocks. But give them credit for one thing: At least they're still (barely) profitable. (Note that Energy Transfer is again the outlier in this regard. With a P/E ratio of only nine, it's actually doing just fine in the profits department.)

Ferrellgas, in contrast, lost money last year, and is well on its way to racking up another loss this year. This being the case, the real question here isn't why the company has failed to match its peers' "CAGR rate of 5%" dividend growth. The real mystery is how Ferrellgas can continue paying a dividend at all -- especially when it has a $1.2 billion debt load dragging it down, and should probably be giving more attention to paying that down.

Foolish takeaway
All of which leads up to UBS now telling investors it's time to sell Ferrellgas Partners. According to our Fool analysts, there are at least three great Dow stocks dividend investors need to own. But between its failure to raise dividends in the past, and the likelihood it won't be able to support even today's dividend payout in the future... Ferrellgas isn't one of them.

Fool contributor Rich Smith holds no position, short or long, in any company mentioned. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 283 out of more than 180,000 members. The Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (1) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 23, 2012, at 4:17 PM, CoastRider wrote:

    Ferrellgas is basically an employee owned company. These employees believe in the company and will carry this them through the hard times. Now they are dealing with a past very mild winter and a hot summer along with a drought. However weather patterns do change and the need for propane will increase, and Ferrellgas will be there to provide service.

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10/21/2016 2:34 PM
FGP $10.56 Down -0.03 -0.28%
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