Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Suburban Propane (NYSE: SPH) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Suburban Propane.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (6.4%) Fail
1-Year Revenue Growth > 12% 4.7% Fail
Margins Gross Margin > 35% 19.5% Fail
Net Margin > 15% 9.7% Fail
Balance Sheet Debt to Equity < 50% 98.5% Fail
Current Ratio > 1.3 1.97 Pass
Opportunities Return on Equity > 15% 31.9% Pass
Valuation Normalized P/E < 20 22.17 Fail
Dividends Current Yield > 2% 7.3% Pass
5-Year Dividend Growth > 10% 6.2% Fail
Total Score 3 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Suburban Propane last year, it weighed in with the same 3-point score. The company still faces a competitive propane industry, and margins have contracted while Suburban Propane's balance sheet has gotten a little more debt-heavy.

Suburban serves residential and commercial customers with deliveries of propane, fuel oil, and other energy products. Although that may not seem glamorous, Suburban and its competitors fill a vital niche for many customers.

What's really eye-popping about the industry, however, are the high dividends these companies pay. Suburban and Ferrellgas Partners (NYSE: FGP) both pay yields of 7% or more, while AmeriGas Partners (NYSE: APU) and Star Gas Partners (NYSE: SGU) carry greater than 6% yields. Inergy (NYSE: NRGY) tops them all with a double-digit dividend yield.

Yet as fellow Fool Rich Smith points out, Suburban has an advantage over higher-yielding Inergy: better cash flow. Unlike Inergy, Suburban routinely has free cash flow levels that match or exceed net income. That should give shareholders greater security that Suburban will be able to maintain its dividends going forward.

Even so, given the nature of the propane business, it's hard to picture Suburban Propane becoming a perfect stock. But that doesn't mean it can't be a profitable investment for income-hungry investors.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add Suburban Propane to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our " 13 Steps to Investing Foolishly ."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.